>> Check out the impact database on MyFairMoney <<
Through a series of surveys in 14 European countries, with more than 14,000 respondents, 2DII found that across Europe, on average, 50% of retail investors want to have an impact with their savings.[1]
However, even though a large proportion of investors want impact, our research also revealed that impact-oriented investors are systemically misadvised by their financial advisors and have very little knowledge of which products would be suitable for their impact objective or where to find them.[2] Moreover, as shown in our latest market report on environmental impact claims in Europe, 27% of self-labelled green retail funds in our scope used misleading/unsubstantiated environmental impact claims, potentially attracting impact-oriented investors and exploiting their willingness to pay for impact.[3]
Besides technical policy recommendations[4] and practical tools for the industry to improve the assessment of impact-oriented client preferences and motivations[5], to avoid misleading impact marketing claims[6], and to educate clients on impact investing[7], 2DII launched the new Impact Potential Assessment Framework (IPAF) earlier this year.[8] Thanks to the funding of the European Commission and the Swiss Federal Office for the Environmental, we pilot-tested the framework in the French, German, Spanish, Swedish, Irish, and Swiss markets (Swiss results will follow in November). Our goal was to create a public database for private investors and product distributors with the best financial products according to their impact potential based on our IPAF.
The scope of this research project was limited to sustainable private equity, private debt, venture capital, and infrastructure funds, as well as crowdfunding and peer-to-peer lending platforms and saving accounts, given the relatively high impact potential of the product categories (meaning that funds trading on the secondary markets were excluded from the scope). After considerable desk research, we created a long list of almost 400 financial products available in the target countries. We then created a shortlist of 100 products by filtering the most promising products available for retail or qualified investors, which we analysed based on the IPAF by assessing information from their public marketing materials. In a final step, we only selected products that were rated E or better for our impact database. In no case, we claim our database is exhaustive. Some high-impact potential products may have escaped our selection process. The list will be constantly expanded in relation to incoming feedback and potentially adjusted to reflect new thresholds. If we missed a financial product with high impact potential in your country, please reach out to us. The new impact database is now available on MyFairMoney.
The IPAF provides an absolute rating methodology, ranging from A to G, based on assessment criteria that were derived from the scientific literature. The reason why most financial products in our scope ranked E on average is fourfold:
- Most financial products do not provide enough concrete information on how they achieve additional impact.
- It is likely that if some financial products would provide more structured information on the investor impact mechanisms they use and their underlying actions, many products would receive a better rating.
- In many cases, financial performance is the focus of the financial product marketing documents. However, from an impact perspective, maximising product impact potential (i.e. IPAF rating) will be rather achieved by accepting below-market returns, higher risk or lower liquidity, or investing resources in effective engagement.
- In the first version of the IPAF, the level of ambition to reach certain thresholds was set high.
The lack of structured information on the application of the most relevant impact mechanisms requires a shift in our thinking about the disclosure of impact-relevant information. To assess the impact potential of financial products, we need to think about new data points. For instance, to assess to which extent a financial product helps growing undersupplied markets or provides flexible capital, we need to explain to which extent the investee had difficulties getting funding or to which extent innovative or concessional financial solutions were applied. Furthermore, to better understand the impact potential of price signalling, more research is needed to define new indicators to assess the effect of investments on share prices, such as market size or price elasticities of stocks.[9]
About our funder and the project: This project is funded by the LIFE Programme and its NGOs on the European Green Deal (NGO4GD) funding program under Grant Agreement No LIFE20 NGO4GD/FR/000026.
This project is part of the Retail Investing Research Program at 2DII, which is one of the largest publicly funded research projects about the supply, demand, distribution, and policy side of the sustainable retail investment market in Europe.
[1] 2DII, 6 National Country Reports, 2023
[2] 2DII, Assessing Client Sustainability Preferences…Lost in the Maze?, 2023
[3] 2DII, Market review of environmental impact claims of retail investment funds in Europe, 2023, Heeb et al., Do Investors Care about Impact?, 2023
[4] 2DII, Fighting greenwashing… what do we really need?, 2022
[5] 2DII, Guidance and Questionnaire for assessing client sustainability preferences and motivations, 2023 and Maastricht University/2DII, A practitioner guide for asset managers & asset owners to assess clients’ and beneficiaries’ sustainability preferences, 2023
[6] 2DII, Guide on environmental impact claims for EU financial products, 2023
[7] See educational content on www.myfairmoney.eu on impact investing, next week we will also publish our new educational podcast, “MyFairMoney – The impact investing podcast
[8] 2DII, The Impact Potential Assessment Framework (IPAF) for financial products, 2023
[9] See also our discussion papers on market signalling, provision of flexible capital, grow new/undersupplied markets, and others here IPAF.
