Thought Leadership


MON, AUGUST 3 2020

Thought Leadership

Narrow Definitions Risk Limiting The Investment Pool For Positive Social Gains

Dean Alborough & Scott Nadler


Impact investments are on the rise. Research in 2018 by management consultants McKinsey found they are growing in popularity. McKinsey expects impact investments to reach more than USD300 billion in total assets under management by 2020. The sums are large but not enormous. To put this in context, USD300 billion is but a small fraction of the estimated USD2.9 trillion that private-equity firms will manage globally over the same period. But what are impact investments? There is no universal definition. Part of the problem of definition is their long genesis. Over time, they have picked up a myriad of conceptual narratives. The Global Impact Investing Network (GIIN), arguably the leading impact investing organisation, acknowledges the challenge in its recent publication Roadmap for the Future of Impact Investing: Reshaping Financial Markets.

For non-specialists trying to get to grips with this, GIIN admits: ‘This universe [of impact investors] lacks a commonly accepted or understood segmentation, creating confusion and opacity that constrains the deployment of investment capital.’ We think GIIN has identified two valid definitional needs: the need to clarify impact investing’s identity and the need to develop investable impact products. The relationship between these two needs – the ‘what’ and the ‘how’ – helps us view and understand impact investing. While difficult to define precisely, professional investors commonly apply useful broad terms to impact investments. First, they can be considered a derived product such as a listed vehicle in capital markets where positive impacts are hard coded into the vehicle’s mandate. Second, they are also defined by

the nature of the investment where specific sectors typically prevail, such as renewable energy. Third is how the investment is undertaken, where any positive outcome is sought, not limited by specific product, mandate or sectors. While none of the above are mutually exclusive, as investors we need to reflect on how we are undertaking investments and whether we are applying the narrower view of impact investing as a product or as a subclass, or if we are applying it in far broader terms. However narrow or broad the definition, one thing is clear: impact investors expect to generate financial returns on their investments while supporting positive environmental and/or social outcomes. This is not the same as environmental or social philanthropy.

A continuous process of reflecting and gaining clarity Impact investing lies within the wider concept of sustainability/sustainable development and environmental, social and governance (ESG) practice. As a term, ESG is now well-established in the financial sector, synonymous with sustainability and sustainable development, which the respected Brundtland Report defines as “… development that meets the needs of the present without compromising the ability of future generations to meet their own needs ”.

Good ESG practice is strategic and should be considered a core part of an investment business, and even more so if impact investing is included. But we must be careful if we advocate the use of the term ‘definition’ as it seems too hard-coded, given the complexity of the world. Instead we prefer to refer to ‘interpretations’ of impact investing, these being more flexible and accommodating. Consider, for example, comparing a wind farm versus a gas thermal power plant investment.

A continuous process of reflecting and gaining clarity Impact investing lies within the wider concept of sustainability/sustainable development and environmental, social and governance (ESG) practice. As a term, ESG is now well-established in the financial sector, synonymous with sustainability and sustainable development, which the respected Brundtland Report defines as “… development that meets the needs of the present without compromising the ability of future generations to meet their own needs ”.

Good ESG practice is strategic and should be considered a core part of an investment business, and even more so if impact investing is included. But we must be careful if we advocate

the use of the term ‘definition’ as it seems too hard-coded, given the complexity of the world. Instead we prefer to refer to ‘interpretations’ of impact investing, these being more flexible and accommodating. Consider, for example, comparing a wind farm versus a gas thermal power plant investment. On the face of it the wind farm is clearly more sustainable and can be considered impact investing purely due to the nature of the asset, which generates power through a renewable resource (wind), while the gas thermal power plant is a non-renewable fossil fuel that produces climate changing CO2, which is clearly worse. But what if the wind farm involves high bird and bat mortality of endangered species, large scale erosion in sensitive habitats, extensive

resettlement of vulnerable communities which was poorly undertaken, disenfranchising those community members and also involved poor health and safety practices? Now consider a gas thermal power plant in which all ESG issues have been appropriately managed, developed at a site which is not in sensitive habitat, has little or no impact on fauna, is within the country’s agreed model of reducing its carbon emissions over time and is in a country that is in desperate need of power to prosper. Although not considered impact investing due to the nature of the asset, it is arguably better sustainable development. The above hypothetical example brings out the challenges of definition and can often lead to arguments about pragmatism versus idealism.

At the heart of this argument is that the most important, dearly-held human values are often the hardest to measure. Energy and environmental issues are essentially about physical conditions in the real world, and thus susceptible to quantification. Human rights issues are hard to quantify and compare: we know what a degree of temperature is (and it is uniform globally), but what is a degree of human freedom or choice? The world is complex. We are not referring to the world as being ‘complicated’, but as made up of countless complex systems. Imagine developing a hard-coded definition as drawing the boundary lines of a box. One then places this box within these countless complex systems. First, this action is wholly anthropocentric and we have presumed to understand these complex systems (we are likely wrong); secondly, the hard-coded boundary lines of the box have created exclusion of everything not in the domain of the box. As we are unlikely to have fully understood the complexity we are working in, much of this exclusion will be unintentional and likely unhelpful. Simply put, many investors who could have had really practical, positive outcomes may be left out of the ‘Impact Investing’ capital resource pool.

Critically, each investor must reflect and gain clarity of how they undertake and understand (interpret) sustainable development and/or impact investing, how this should inform their strategy, and how this can be clearly articulated to their stakeholders. This allows for alignment on strategy and alignment of expectations with stakeholders. Our real world example highlights how impact investing and sustainable development can be complex and messy. Clarity is the issue here. What is key is how your specific offering, your way of thinking and reporting, and ultimately your ESG and impact investing strategies are articulated clearly with your stakeholders. In considering this, investors should first reflect on the full landscape of sustainable development, and the full toolbox of ESG and how this can be applied to all investments rather than defaulting to a potentially narrow view of impact investing too quickly. A key consideration is understanding your budget to support a determined strategy. Again, one is not arguing that one strategy is better than another, but that rigor is necessary in understanding, distinguishing, choosing among and executing any of these strategies that result from the interpretation(s) of impact investing you wish to adopt.

Another consideration is where international ESG standards, guidelines and reporting frameworks find themselves in one’s view and interpretation of impact investing? How will you operationalise these frameworks to ensure that the broad foundation of good ESG practice underpins your investment strategy? What we should avoid is a narrow focus on impact investing that is to the detriment of good ESG practice and sustainable development across the private equity market, where positive environmental and social outcomes can be delivered to more communities while investors make agreed returns on their capital.

Dean Alborough is Head of ESG at Old Mutual Alternative Investments and Scott Nadler is Principal and Founder of Nadler Strategy and a non-executive director of Ibis ESG Consulting.

Thought Leadership

Experiencing The Value of Diversity in Governance Structures.

Dean Alborough


At the heart of sustainable businesses is effective corporate governance. It is good governance that ensures businesses deliver for all stakeholders, including shareholders, lenders, employees, suppliers and the communities in which we invest.

As a responsible investor, Old Mutual Alternative Investments (OMAI) maintains focus on governance aspects in all our investment decision-making and active stewardship of assets. We also apply best governance practices in our portfolio companies. This includes across various African jurisdictions, adhering to local governance related laws and using the King IV Report on good corporate governance as a key reference framework. We also provide hands-on advice and support at board and subcommittee level in portfolio companies.

Board diversity has been a topical point for many years now. The Harvard Business Review notes that their own 2018 Annual Corporate Directors Survey shows that nearly 95% of directors agree that diversity brings unique perspectives to the boardroom, while 84% believe it enhances board performance.

Despite the advantages of diverse boards and corporate cultures, making this happen has remained frustratingly slow, and collectively we all need to improve our performance. One look at some recent statistics gives a clear picture of the current state of progress, or rather the lack of it. In the United States according to the Equilar Index, only 17.7% of Russell 3000 board seats are held by women, and only 15% of board seats at the top 200 companies in the S&P 500 are held by racial minorities.

are held by racial minorities. This being said, some recent actions show legislators are beginning to demand more than good intentions. For example, the state of California last year mandated that every publicly-traded company headquartered in the state must have at least one woman on its board by the end of 2019. Companies with at least five directors will be required to have two or three women, depending on the board’s size, by 2021. Norway, Iceland, Spain and France now require boards to be 40% female. But if left to their own devices boards are not diversifying.

One of our key questions is how are we establishing and supporting non-homogenous boards and subcommittees in our portfolio companies.

In the last year we have undertaken a focused effort on supporting board diversity across our portfolio. Some solid advances have been made but of course it is work in progress.

Steps in a journey of diversification

Four aspects of diversity within governance structures are race, culture, gender and knowledge/skillset. One of African Infrastructure Investment Managers’ (AIIM), the infrastructure investment business of OMAI, flagship Pan-Africa funds, Africa Infrastructure Investment Fund 3 (AIIF3), is actively driving diversity against these aspects.

AIIF3 has appointed a number of non-executive directors (NEDs) on the boards and subcommittees of its investee companies to actively promote diversity and effective leadership. These include regional and industry specialists, or operating partners. Regional specialists include two Francophone Africa and two East Africa senior advisors, both are women. Our operating partners have operational and technical expertise in the following sectors: thermal power, renewable energy, midstream energy, ports and logistics and airports.

From a gender perspective AIIF3 currently has four women NEDs in four of the portfolio companies, including a chairperson role.

We are also working with The Boardroom Africa, which promotes talented women to boards across the African continent, to further improve gender diversity and actively recruit women for investee company boards. It also connects peer-endorsed, board-ready women with CEOs and board executives for access to board and investment committee services.

Six women NEDs in our portfolio companies have since joined The Boardroom Africa to help support gender diversification across other businesses outside of AIIM. While not sufficient, it is a move in the right direction and the positive experience of gender diversification across these boards only motivates us to do more.

Linking with partners such as The Boardroom Africa has helped us on this journey.

Tamsin Jones, Co-Founder and Executive Director of The Boardroom Africa, commented: “We are thrilled to partner with African Infrastructure Investment Managers, not only is it Africa's largest and most experienced infrastructure-focused private equity fund manager, but also a true champion for diversity in corporate governance.

“Most recently, we were pleased to collaborate on the successful search for diverse candidates for BBOXX Rwanda, an AIIM investee company. We will continue to support AIIM through the endorsement of women within AIIM's network,

active placement of women on AIIM boards as well as knowledge-sharing of new data and research on the benefits of diversity on board and investment committees. AIIM's leadership should signal to the broader investment community that championing diversity yields real benefits."

Experience at subcommittee level

Through AIIM’s earlier flagship Pan-Africa fund, the Africa Infrastructure Investment Fund 2 (AIIF2), I have the pleasure of sitting on a board and subcommittee of a solar PV farm located in South Africa.

It has been an interesting exercise to consider the diversity of the Social and Ethics Subcommittee of the board. The subcommittee is made up of eleven individuals, six of whom are women and six non-white; most from varying backgrounds. One individual hails from the region where the solar PV farm is located and understands intrinsically the culture and context of the business. Overall there are at least five different cultural backgrounds represented on the subcommittee. From a technical perspective there are two environmental, social and governance (ESG) specialists, two current solar PV plant CEOs, a human resources advisor, two financial professionals, two community operations professionals, a technical operations manager and a company secretary.

Given the broad spectrum of sustainability that the subcommittees need to oversee, I think it is critical that subcommittees are suitably diverse. As a subcommittee member I’ve personally seen the business face highly varied issues. On reflection every single members’ background and skillset has been called upon to support the business in its decision making. Issues have ranged from internal employee aspects, community aspects, operational health and safety, security, water quality, managing electrical installations at an industrial scale, financial cash flows and management to beneficiaries of the business and its governance.

It is not always comfortable assembling fully diversified boards or subcommittees, especially if dealing with established legacy boards or subcommittees. However, what has proven incredibly valuable in the above example and across the AIIF3 fund is to consider the nature of the business, the context in which the business finds itself and the function that the board or specific subcommittee needs to fulfil, and then actively work to establish a group of individuals that are collectively best placed to deliver leadership.

In every circumstance, team performance in life and business is improved through the addition of unique skills sets and enhanced by team diversity, whereby specific strengths of individuals with different cultural backgrounds are combined to make a stronger whole. AIIM strongly believes diverse teams are critical to success, better teamwork and a much reduced risk of ‘groupthink’.

Thought Leadership

How to Measure the Impact in Impact Investing.

Dean Alborough


Private markets are seen as fertile ground to more directly achieve positive impact, given an investors engagement at boards and subcommittees. With the speed at which impact investing is evolving, it is prudent to self-reflect on one’s own impact management practices and test the integrity of your approach. Who would have thought that the investment profession would become one of the leading actors of global sustainability? Many now hold the view that managers of capital have a moral duty, given their role, to drive forward the sustainability agenda. Ten years ago, as a consultant I certainly would not have predicted the role asset management now plays in the drive for global sustainability. Yet here we are, with impact investing showing signs of only gaining further momentum.

And so, demonstrating your impact (positive contribution) is more and more a requirement to do business. Old Mutual Alternative Investments (OMAI) is one of the largest alternative investment managers in Africa, with over R58 billion (US$4 billion)* under management in infrastructure assets, private equity and impact funding. Our commitment to responsible investment is central to OMAI’s investment objectives and to fulfilling our fiduciary duties towards our shareholders and beneficiaries. We believe that embedding environmental, social and governance (ESG) thinking into our investment decision-making is critical if we want to create positive futures and sustainable, superior, risk-adjusted returns for our clients. Framework to achieve its vision of continual improvement in ESG performance and unlocking positive impact outcomes.


OMAI has therefore adopted an ESG and Impact Management Impact investing can be viewed as a subset of good ESG practice. The International Finance Corporation (IFC) recently defined impact investing as ‘investments made in companies or organisations with the intent to contribute measurable positive social or environmental impact, alongside a financial return’**. There are four key elements that an impact investment must have, according to commonly adopted definitions –
1. intent,
2. positive impact contribution,
3. measurement thereof and
4. financial return.

ESG (sustainability) practice in the financial services historically focused on negative impacts risk mitigation (focus of ‘do no harm’). A growing realisation dawned globally that if we continue to incur negative impacts, even if minimised, a downward trend in environmental and social health inevitably results. In 2015, the United Nations Sustainable Development Goals (SDGs) were established, providing governments and the private sector the opportunity to contribute towards the overall goals, creating not only a focus on the risk management of negative impacts, but an equal focus on the creation of positive impacts and their contribution towards meeting the major challenges facing our world. A global shift led to an idea of “net positive outcome”. However, the adage “you cannot manage what you don’t measure” holds just as true in the ESG and impact investing practice.

Investments that claim to result in positive outcomes require credible, robust measurement to evidence such impact. Robust positive impact measurement allows for the following:
1. Defensible evidence of your positive impact.
2. A deeper understanding of how positive impacts are being created.
3. An analysis to determine if the positive impact is what you intended.
4. Just as important, an indication if efforts are not resulting in the intended positive impact. In which case management decisions should be made to adjust your activities.

Unfortunately, for good reason, there is a growing concern in the impact investing world called ‘impact washing’, where investors falsely claim the achievement of positive impacts. To guard against this, investors should adopt a robust defensible impact measurement and management approach.


The practice of measuring impact has been around for decades in the environmental and social industry, primarily in impact assessment practices. Much can be gained from analysing these applications. More recently the Global Impact Investing Network

(GIIN) has published documents on impact measurement, and the Impact Management Project has provided a framework of the elements that can be considered when measuring impact. In a recent publication, the IFC has identified three dominant approaches adopted for impact ‘measurement’. These include:

1. Actual measurement of defined metrics against a target/goal (Impact target archetype)
2. A qualitative assessment of the significance of the impact (Impact rating archetype)
3. A quantitative calculation of the degree of impact (Impact monetisation archetype).

It is critical to identify that there is a difference between

‘measurement’ and ‘rating’, and that these are not mutually exclusive. It is possible to undertake impact rating in a very subjective manner with little to no real measurement, highlighting a risk of the rating archetype. Approaches 1 and 3 above require actual measurement of impact.


OMAI’s primary approach is the impact target archetype. This is the identification of goals with associated targets. Measurement of relevant metrics is undertaken to assess progress, or lack thereof, against these targets.

The key reasons why OMAI has adopted this as our primary approach is the following:

1. OMAI has always held the position that any claimed positive impact must be based on credible, defensible evidence.

2. Only by measuring your impact at ground level can you manage it.

3. While an impact rating approach could be overlaid, it needs to be based on actual ground level measurement in any event.

4. The impact monetisation approach, while powerful in result, is an expensive and time consuming methodology.

OMAI utilises this approach in certain ad hoc contexts where it makes sense and is complementary to the primary impact measurement approach.

Thought Leadership

Impact investors should reflect on why they may choose a certain approach, and implement an impact measurement system.

The SDGs are a set of 17 goals which act as a successor to the Millennium Development Goals. These goals were adopted at the Sustainable Development Summit on 25- 27 September 2015 in New York, and are now considered the primary global benchmark for institutions seeking to achieve sustainable development in their business, activities and investments. OMAI uses the SDGs as topline objectives, identifying those global goals which we believe we are most likely able to influence in terms of outcomes across our broad portfolio and those that are relevant within our context. OMAI implements an environmental and social management system (ESMS) as a robust approach to embedding ESG requirements across its fund portfolios, including a positive impact management framework. The ESMS fully integrates ESG into the OMAI investment lifecycle. ESG and impact metrics are tracked across our portfolios, aligned to our goals and SDGs for both risk management and positive outcomes. Only metrics that are relevant for a given portfolio company are tracked. Where initiatives or activities are intended to generate a positive impact, OMAI uses a Theory of Change methodology which maps the change pathway for the intended positive impact. This allows the identification of the relevant metrics to be tracked. The Theory of Change model is used and recognised by global Development Finance Institutions (DFIs) as a credible approach to measuring positive impact.


We view the reporting of ESG risk management and positive impact as the by-product rather than the primary focus. The primary focus is driving decision-making and positive change at the portfolio company itself, at ground level. Opportunities identified from measured data analyses are applied through a feedback loop to the portfolio company, and actions driven through the board and subcommittees. Investors should adopt a well-considered system for impact management. Increasingly this will be a requirement to play in the impact investing space, with an emphasis on measurable outcomes of what has been achieved.

*As at 31 December 2018 **International Finance Corporation. 2019. Creating Impact: The Promise of Impact investing

This article was written by Dean Alborough, Head of ESG, Old Mutual Alternative Investments Originally published in Business Times on 14|02|2020


Dean heads the Environmental, Social and Governance (ESG) practice at Old Mutual Alternative Investments (OMAI), implementing ESG activities including Impact Investing throughout the investment lifecycle, and manages the ESG systems and performance of OMAI’s assets. His experience includes work in the power (renewables and thermal), oil and gas, mining, ports and logistics, schools and property sectors, undertaking a full range of integrated environmental management processes.