Five Building Blocks for Impact Management

Impact in practice: social infrastructure.

Franklin Real Asset Advisors

PREVIEW

By Franklin Real Asset Advisors, in collaboration with Tideline

Impact investing is a growing practice that now covers almost $250 billion in assets under management (AUM) . It differs from other kinds of sustainable and responsible investment strategies, such as the exclusion of certain investments on ethical or religious grounds, or thematic investing, which focuses on specific societal problems such as water scarcity or climate change. Rather, the defining feature of impact investing is the explicit intention to generate positive, measurable social and environmental outcomes alongside a financial return in most cases.

As impact investing gathers pace, investors are refining their approach from an early emphasis on impact measurement – the practice of quantifying impact outputs and outcomes – to focus on impact management, a forward-looking approach that integrates impact considerations into each stage of the investment process. This focus on managing impact aims to understand an investment’s impact more fully and improve social and environmental performance throughout the lifetime of an asset.

There are now a range of tools that enable investors to manage for social and environmental impact with increasing rigor and confidence. However, no single, unified best practice has yet emerged for impact investing, and in its absence, the proliferation of methodologies and metrics has introduced an element of confusion. Simply navigating through all the resources available to impact investors can be a challenge.

This paper seeks to provide a guide to help investors build impact management systems that are both tailored to their strategic focus and aligned with best practices. It will provide an overview of the different frameworks and tools available to impact investors and classify them into five broad categories: objectives, standards, certifications, methodologies and metrics. These building blocks of impact management come into play at different stages of the impact management process, and we provide an example of how they might interact with each other in the case of a social infrastructure strategy.

Taxonomy of impact management tools and frameworks

Exhibit 2: Taxonomy of impact management tools and frameworks

Source: Franklin Templeton Real Asset Advisors and Tideline

Ultimately, each investor must decide which combination, and what degree of customization is appropriate for their impact management system. The practice of impact management is a dynamic process and subject to continuous improvement.