Morningstar - Q3 2021 - 43

EXHIBIT 1
Impact Investing Framework Sustainalytics thinks about impact in terms of six key themes. Here's how the U.N.'s 17 Sustainable
Development Goals fit into this framework. Investors typically focus on one issue or set of issues.
1
Leadership and
Collaboration
2 Human Development
Sustainable Cities and Communities
Peace, Justice, and
Strong Institutions
Partnerships for
the Goals
3 Climate Action
Affordable and Clean Energy
Reduced Inequalities
Quality Education
Decent Work and
Economic Growth
Gender Equality
Sources: Sustainalytics, U.N.
Industry, Innovation,
and Infrastructure
Climate Action
Good Health
and Well-Being
No Poverty
Zero Hunger
4 Basic Needs
Clean Water
and Sanitation
5
Resource Security
Responsible
Consumption and
Production
6 Healthy Ecosystems
Life Below Water
Life on Land
IMPACT THEMES
SUSTAINABLE
DEVELOPMENT
GOALS
At Sustainalytics, we've developed a data set
that helps investors understand and measure
the positive or negative impact of their
investments on areas such as climate change,
basic needs and human health, biodiversity, and
gender equality. Sometimes, we track the
revenue of a company to measure the extent to
which its business model addresses an impact
area-for example, revenue supporting
climate change (such as electric vehicles and
renewable energy). Other times, we track
metrics that help investors understand how
a company's operational practices support an
impact area; for example, on gender
diversity, we track the percentage of women
at different levels within an organization.
What Issues Do Impact Investors Address?
There is no one-size-fits-all model of impact
investor; there is a range of areas to focus on, from
gender diversity and water security to affordable
housing and climate adaptation, among others.
Impact investors commonly define their mandate
by selecting an issue or set of issues on which
they intend to improve outcomes. Commitments
may focus on environmental, social, or a
combination of both; they may be location-specific
or global; and increasingly they are tied to national,
regional, or global sustainability objectives.
Indeed, many investors use the U.N. Sustainable
Development Goals framework as their guide,
selecting one or more of 17 goals as their focus.
At Sustainalytics, we think about impact in terms
of six key themes ( EXHIBIT 1 ):
1 Leadership and Collaboration Encompasses
investments that support firms or initiatives that
promote sustainable communities.
2 Human Development Includes investments
targeted at improving human capabilities and
promoting human progress.
3 Climate Action Encompasses investments that are
focused on curbing the Earth's rising temperature.
4 Basic Needs Includes investments to address
access to basic services, especially for underserved
populations.
5 Resource Security Includes investments that
address the efficient use of resources, especially
natural resources, and promote circular economies.
6 Healthy Ecosystems Addresses investments
seeking to safeguard ecological environments.
Impact Investing in the Big Picture
In recent years, investors who are motivated to use
ESG as a risk signal have driven the proliferation
of sustainability data in investment decisionmaking.
With an ESG-risk view, these investors are
focused on how ESG factors may influence the
long-term value of an entity and seek to manage
these risks to optimize returns. Their primary
objective is financial returns.
Conversely, impact-focused ESG investors are
concerned with how their investments affect
the environment and society. For each investment,
they focus on understanding how an entity,
through its business activities and supply chain,
contributes to positive environmental and social
outcomes. These investors ask questions such as:
gAre my investments aligned with a more
sustainable future?
gDo my investments support the U.N. Sustainable
Development Goals?
gHow can I minimize my portfolio's impact on the
environment and society?
Impact investing is an approach to responsible
investment that is likely to continue to gain in
prominence as a way to channel capital into
investments that address major global social and
environmental challenges. While the strategy
may not be appropriate for all clients, it
is worthwhile exploring if your clients want to
drive positive impacts with their investments,
alongside generating financial returns. K
Megan Wallingford is associate director, product strategy,
with Sustainalytics.
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