It has been five years since we took the decision to develop an approach to impact investing at Arisaig, and nearly three years since launched our emerging markets public equity impact strategy. The value of global impact investing assets has increased dramatically over that time, reaching over USD 1.16tn by 2022[1]. Industry initiatives, tools and guidance for impact measurement and management (IMM) have also evolved over the same period although are still relatively nascent compared to ‘ESG solutions’.
We have learnt a huge amount over this period and whilst there have been a number of incremental refinements over this period, in in the first quarter of this year, we made two meaningful changes: firstly, we meaningly revised our impact scoring framework; and secondly, we created the Arisaig Impact Forum, a council dedicated to impact discussions.
Impact scoring framework
As shared in a previous Insights piece, our impact scorecard is a crucial component of our IMM framework. It summarises the extensive qualitative impact analysis that our investment team undertakes based on the Five Dimensions of Impact[2]and the translation of this into a numerical measure which aids comparison between companies and over time. Over the last five years we are confident our understanding of what ‘good’ impact looks like has improved.
While the original scorecard served us well initially, we have struggled with certain aspects. Specifically, we felt the scorecard wasn’t comprehensive enough as it didn’t capture all relevant impact considerations. It also was too backward looking, failing to capture impact potential. Finally, it had certain biases e.g., companies that had large numbers of beneficiaries tended to score disproportionately high.
The updated impact scorecard implemented in Q1 2023 is more sophisticated in that it includes an assessment of a wider range of impact factors. Our original scorecard focused on Reach, Criticality, and Effectiveness; the updated version goes beyond these considerations and incorporates Evidence, Net Impact, and Alignment (see table below). The total number of impact-related metrics which are scored has doubled from six to twelve.
The final impact score is expressed as a percentage of the maximum theoretical score. Holdings are reassessed at least every three years, more frequently where there is higher impact risk or a significant change in the business.