IMPACT INVESTING MARKET MAP WHITE PAPER DOCUMENT FOR CONSULTATION An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact
WHITE PAPER - DOCUMENT FOR CONSULTATION THE SIX PRINCIPLES PREAMBLE TO THE PRINCIPLES As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following: 1 2 ownership 3 the 4 within 5 implementing 6 implementing We will incorporate ESG issues into investment analysis and decision-making processes. We will be active owners and incorporate ESG issues into our policies and practices. We will seek appropriate disclosure on ESG issues by entities in which we invest. We will promote acceptance and implementation of the Principles the investment industry. We will work together to enhance our effectiveness in the Principles. We will each report on our activities and progress towards the Principles. PRI's MISSION We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole. The PRI will work to achieve this sustainable global financial system by encouraging adoption of the Principles and collaboration on their implementation; by fostering good governance, integrity and accountability; and by addressing obstacles to a sustainable financial system that lie within market practices, structures and regulation. PRI DISCLAIMER The information contained in this report is meant for the purposes of information only and is not intended to be investment, legal, tax or other advice, nor is it intended to be relied upon in making an investment or other decision. This report is provided with the understanding that the authors and publishers are not providing advice on legal, economic, investment or other professional issues and services. PRI Association is not responsible for the content of websites and information resources that may be referenced in the report. The access provided to these sites or the provision of such information resources does not constitute an endorsement by PRI Association of the information contained therein. Unless expressly stated otherwise, the opinions, recommendations, findings, interpretations and conclusions expressed in this report are those of the various contributors to the report and do not necessarily represent the views of PRI Association or the signatories to the Principles for Responsible Investment. The inclusion of company examples does not in any way constitute an endorsement of these organisations by PRI Association or the signatories to the Principles for Responsible Investment. While we have endeavoured to ensure that the information contained in this report has been obtained from reliable and up-to-date sources, the changing nature of statistics, laws, rules and regulations may result in delays, omissions or inaccuracies in information contained in this report. PRI Association is not responsible for any errors or omissions, or for any decision made or action taken based on information contained in this report or for any loss or damage arising from or caused by such decision or action. All information in this report is provided as-is, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, expressed or implied. 2
IMPACT INVESTING MARKET MAP 2017 CONTENTS FOREWORD DEFINITIONS AND CONCEPTS INITIAL CONSIDERATIONS ABOUT THE MAP ENVIRONMENTAL THEMATIC INVESTMENTS SOCIAL THEMATIC INVESTMENTS ADDITIONAL QUESTIONS METHODOLOGY AND PRE-CONDITIONS FINAL CONSIDERATIONS 3
WHITE PAPER - DOCUMENT FOR CONSULTATION FOREWORD The UN Sustainable Development Goals (SDGs) is a global initiative focused on ending poverty, protecting the planet and ensuring prosperity for all. It is projected that the economy needs US$4trn annually to achieve the 17 SDGs, with US$1.4trn from the private sector. The PRI is committed to supporting the UN s efforts and helping investors integrate the SDGs into their businesses and investment decisions. Indeed, we are currently developing a programme on the SDGs, including: an SDG Investment Case; guidance on how to incorporate the SDGs into asset allocation, investment decisions and active ownership; and contributions to initiatives in (corporate) reporting. Additionally, we want to help bring impact investing to the mainstream by working with a raft of investors and industry experts to develop an Impact Investing Market Map ( the map ). The map features information about 10 environmental and social thematic areas of impact investments and businesses that, by their nature, intend to contribute to sustainability and the SDGs. KRIS DOUMA Director of Investment Practice & Engagement, PRI As such, the map serves as a methodology to identify impact investing opportunities, enabling investors to expand their existing impact investing funds or incorporate ambitions to create positive impact through their regular portfolios. It has also been designed as a reference guide for mainstream investors interested in identifying primarily medium and large companies in the impact investing field. Ultimately, the aim of the map is to bridge the gap between the niche but growing impact investment universe and the broader economy. We hope it will show how investors can, with relative ease, begin contributing to the SDGs by investing in these markets through either a separate allocation or within their current asset classes. The PRI expects the map to support the many initiatives and efforts already underway to bring clarity and scalability to the impact investing industry and, in turn, consideration of the SDGs across regions and countries. 4
IMPACT INVESTING MARKET MAP 2017 DEFINITIONS AND CONCEPTS Impact investing is a part of a broader financial ecosystem that includes a variety of concepts, methodologies and frameworks. This section outlines the main definitions and concepts used in the map, with information based on references from Multilateral Development Agencies including the World Bank, UN agencies, the International Finance Corporation, as well as major data providers and international organisations that operate in the impact investing field. IMPACT INVESTING Companies and organisations that generate revenues (based on market-rate returns) from products, services, technology and infrastructure that deliver solutions (or positive impacts) to society and the environment. In this sense, impact investments refer to organisations outputs (i.e. products and services that are directly related to its business model and revenues), rather than inputs (i.e. ESG practices and policies, CSR initiatives and risk mitigation tools). Additionally, the concept of impact (both primary and direct) is associated with companies environmental and social (E&S) outputs only; governance factors are excluded. DIRECT IMPACT The World Bank defines direct impact as investments that have a direct and clear cause-effect relationship with an output (a company s products and services) 1. PRIMARY IMPACT The first impact generated by the output of a company. For instance, SME finance may provide micro-loans to small companies (primary impact) that could be used to purchase solar panels (secondary impact). THEMATIC INVESTMENT The map is organised based on thematic investments. In this project, the PRI defines thematic investments as investing categories that target specific social or environmental goals. The map covers 10 types of thematic investments, and these investments are part of the PRI Transparency Framework. 1. Both primary and direct impacts are similar, but the first focuses on the investment goal and the second on the beneficiary type. 5
WHITE PAPER - DOCUMENT FOR CONSULTATION INITIAL CONSIDERATIONS This section highlights initial considerations about the map, its purpose and methodologies. IT IS NOT A STANDARD the map gives investors a methodology to begin identifying impact investing companies. IT IS NOT A FRAMEWORK the map focuses on existing information about impact investing companies based on thematic investments. IT DOES NOT FOCUS ON TRADITIONAL OR NICHE IMPACT INVESTMENTS the map targets mainstream (high liquidity and maturity) impact investing companies, including listed equity firms and medium and large infrastructure projects. IT FOCUSES ON IMPACT INVESTING COMPANIES, NOT FUNDS the map targets companies and businesses (real economy) that operate in the impact investing field, not funds or investment vehicles. FOOTNOTES due to the quantity of studies involved in this project, footnotes will be added to the final version. FINANCIAL CONDITIONS each thematic investment has its own financial conditions, based on a benchmark of companies revenues covered in MSCI and FTSE indexes, as well as PRI signatory data. 6
IMPACT INVESTING MARKET MAP 2017 ABOUT THE MAP The impact investing field continues to grow apace: PRI data shows that 465 organisations made impact-related investments last year, representing US$1.3trn in combined AUM up from 280 and US$800bn respectively in 2014. Asset managers, fund managers and other service providers are seizing business opportunities related to rising demand for impact investment products and services globally. Players such as MSCI and FTSE are dedicating more resources to measuring the impacts that companies have beyond standard ESG practices, KPIs and ratings. However, the impact investment landscape remains broad as well as fragmented, throwing up a raft of challenges. Many terms and thematic investment areas (such as energy efficiency and affordable housing) have not been universally defined, making it difficult to identify benchmarks and set industry best practices. For those interested in pursuing a new impact investing endeavour, identifying relevant companies can be a complex and onerous task. The map is a valuable resource for institutions and individuals seeking to establish an impact portfolio or hone existing investment strategies. Importantly, it is not a standard to be followed or adopted by PRI signatories and others; rather, it is designed to help investors and investees navigate the impact investing world and make decisions accordingly. The map crystallises definitions, contributing to the formalisation of a much-needed industry language and ultimately serving as a reference guide for those working in this dynamic sector. The map was developed based on a study of over 450 reports from UN agencies, market leaders, universities, indices and data providers (i.e. MSCI, FTSE, Bloomberg), as well as interviews with PRI signatories and external stakeholders. Its methodology is based on companies that generate income from at least one impact investing theme, of which the PRI has identified 10: The Impact Investing Market Map cuts through the noise by serving as a simple yet practical tool to help asset owners, asset managers and fund managers identify impact companies based on specific thematic investing criteria. It is centred on definitions and practices established by organisations including the United Nations, World Bank and OECD, as well as other market leaders. ENVIRONMENTAL SOCIAL Energy efficiency Inclusive finance Green buildings Affordable Housing Renewable energy Education Sustainable forestry Health Sustainable agriculture Water 7
WHITE PAPER - DOCUMENT FOR CONSULTATION THEMATIC INVESTMENTS AND THE UN-SDGS The 10 thematic investments covered in the map seek to contribute to sustainable development, and thus usually relate to one or more of the SDGs: Thematic Investment Sustainable Development Goal Affordable Housing Energy Efficiency Education Sustainable Forestry Green Buildings Health Inclusive Finance Renewable Energy Sustainable Agriculture Water 8
IMPACT INVESTING MARKET MAP 2017 TARGET AUDIENCE AND STRUCTURE Target audiences include trustees, board executives, asset managers and fund managers, as well as organisations such as data providers, impact investment companies and academics. The map aims to provide five main benefits to the investment community: resource for asset owners interested in discussing how impact investment funds are designed and managed; support asset and fund managers looking to design and evaluate their impact fund(s) using a third-party organisation; and asset owners and fund managers can use the map in tandem with their own policies and practices. definitions of impact investment themes based on UN Conventions, global initiatives and market leaders; a basic but practical methodology to identify companies that generate revenues from at least one impact investment theme; Trustees and asset owners board can use this map to guide an executive towards impact investments and fiduciary goals Asset owners can use this map to improve the dialogue between asset and fund managers regarding impact investments, and to identify and differentiate impact investing funds from ESG investing Fund managers and investors can use this map to support their impact investing portfolio construction, as well as in the E&S due diligence and reporting processes The 10 thematic investment methodologies provide practical direction and guidance to institutional investors and organisations interested in investing in companies and businesses engaged to tackle megatrends and global initiatives such as the SDGs Government Trustees Asset owners Fund-of-fund managers Fund managers Impact investing companies Final beneficiaries Area of Influence Target area Real economy area Impact area 9
WHITE PAPER - DOCUMENT FOR CONSULTATION The following diagrams provide more detail on how to read and use the map. PAGE 1 THEMATIC INVESTMENT: ENERGY EFFICIENCY Definition of a specific thematic investment Companies that generate their revenues from products, services, infrastructure or technologies that proactively address the growing global demand for energy while and industrial automation and controls, and optimization systems; infrastructure, technologies, and systems that distribution, power storage and demand-size management ; and technologies and products that focus on using renewable energy sources to transport vehicles. BASIC CRITERIA AND CONDITIONS Source Combination of MSCI Sustainable Index Global initiatives alignment United Nations Sustainable Development Goals Montreal Pledge Paris Agreement Source of the definition and the correlation of this thematic investment with the SDGs and other international initiatives Criteria and outputs (i.e. energy consumption, battery capacity); and b) companies that generate revenues from at least one type include companies or organisations that do not have both factors, independently of whether a company is part of an international or national association, network or community devoted to promoting, certifying, applying and/or investing Business/investment types Initiative types services and technologies to improve industrial operations turbines, motors and engines for industrial facilities. Industrial automation and controls ISO 50001 (or equivalent) ISO 20000 (for technology and services only) (or ISO 22400 (or equivalent) ISO 9001 (or equivalent) ISO 14001 (or equivalent) provide cloud computing, data optimisation systems and service management systems. Infrastructure, technologies and systems to improve power management, distribution and storage Ex: smart grid technology and products, advanced meters and clean tech products. Technologies and products that do not use fossil fuel consumption in transport vehicles. Ex: electric vehicles. Thematic investing criteria is organised by a) business or investment type (specific types of businesses implemented or delivered by a company operating in a specific thematic investment field) b) certifications that showcase a company s commitment to impact investing or to ensure its business is positively impacting society and the environment, and c) national and international initiatives that help differentiate companies that are committed to impact goals and those that are not 10
IMPACT INVESTING MARKET MAP 2017 PAGE 2 DATA IDENTIFICATION AND SELECTION Thematic conditions improve industrial operations ISO 20000 (or similar) ISO 50001(or similar) Financial conditions 1. Identify if a company or organisation generates its revenues from one or more products, services, technology and infrastructure as highlighted in the thematic criteria (see left box); Energy Performance (SEP) Comply with one or more initiative(s): Not applicable 2. conditions above, include only companies and organisations that generate more than 70% of their direct revenues through energy and projects as highlighted in this document; Industrial automation and controls ISO 22400 (or equivalent) ISO 9001 (or equivalent) Comply with one or more initiative(s): Not applicable Infrastructure, technologies and power management, distribution and storage 3. (If applicable) if a company invests in R&D, determine the percentage of its investments in the targeted theme (minimum 5% of total R&D investment allocation - year); 4. (If applicable) investments in R&D can substitute or complement a company s revenue conditions in item 2; 5. (If applicable) if a company generates revenues from two or more thematic sustainable agriculture, renewable energy, the thematic conditions box, total direct revenues through these investment types should be greater than 50% of total revenues. Basic financial conditions to identify impact investing companies based on themes ISO 50001 (or equivalent) ISO 14001 (or equivalent) Comply with one or more initiative(s): Not applicable Technologies and products that do not use fossil fuel consumption in transport vehicles ISO 50001 (or equivalent) Comply with one or more initiative(s): Not applicable Conditions (certifications and initiatives) required to be aligned with specific thematic investing businesses/investments The alignment of thematic and financial conditions helps investors identify impact investing companies PAGE 3 Further information to support investors work Additional information Financial incentives provided by a third party (i.e. governmental agency, non-governmental organisation or private entities) to support a company s operations targeting this thematic investment would be included as revenues/ assets under management. Unless explicitly highlighted in this document, investments related to ESG considerations (a company s inputs) and internal operations (i.e. low carbon footprint practices) will not be included in this thematic theme. A company s investments in grants, philanthropic initiatives and/or investments with no capital gains will not be included as a thematic theme. A company s impact on the E&S groups and individuals generated by philanthropic or corporate social responsibility (CSR) projects and programmes will not be included in this thematic theme. thematic investment and should not be included in its thematic investment revenues/assets. included in this thematic investment (i.e. company A providing machinery to company B that produces electric vehicles will not be included). Only direct revenues generated by products, services, technologies and infrastructure in the thematic investment above will be considered. (If applicable) if a company generates revenues from two or more types of thematic investments covered in the map, assess the individual thematic conditions of these investments and include companies and organisations that generate more than 50% of their direct revenues from two or more thematic investments covered. ADDITIONAL INFORMATION Collecting data The PRI s E&S team proposes two options to collect data based on the criteria above: 1. Use the information in this methodology as a reference: Data collection should follow all the conditions and criteria highlighted in this document. 2. Use the information in this methodology as a basic reference: Data providers or consultants may use the Information and suggestions on how to use and collect the data conditions highlighted on page 2 Common indicators used by the international community to track the outputs/outcomes of a specific thematic investment Common indicators The PRI s E&S team proposes two options to collect data based on the criteria above: 1. Use the information in this methodology as a reference: Data collection should follow all the conditions and criteria highlighted in this document. 2. Use the information in this methodology as a basic reference: Data providers or consultants may use the Indicator name Expected outcomes Metrics UN-SDG target Questions The PRI listed questions that asset owners, fund-of-funds and fund managers can use during the fund selection process, investment appraisals and due diligence processes. These questions are considered voluntary. When applicable, this section provides additional information including questions to be used by asset owners and fund managers in their work 11
WHITE PAPER - DOCUMENT FOR CONSULTATION ENVIRONMENTAL THEMATIC INVESTMENTS ENERGY EFFICIENCY GREEN BUILDING RENEWABLE ENERGY SUSTAINABLE AGRICULTURE SUSTAINABLE FORESTRY WATER 12
IMPACT INVESTING MARKET MAP 2017 THEMATIC INVESTMENT: ENERGY EFFICIENCY Definition Companies that generate their revenues from products, services, infrastructure or technologies that proactively address the growing global demand for energy while minimizing effects in the environment, this include technologies and systems that promote efficiency of industrial operations and industrial automation and controls, and optimization systems; infrastructure, technologies, and systems that increase the efficiency of power management, power distribution, power storage and demand-size management ; and technologies and products that focus on using renewable energy sources to transport vehicles. Source Combination of MSCI Sustainable Index Methodology definition and United Nations definition/approach on energy efficiency. Global initiatives alignment United Nations Sustainable Development Goals Montreal Pledge Paris Agreement BASIC CRITERIA AND CONDITIONS Criteria Companies operating in the energy efficiency sector based on a combination of two factors: a) third-party certification that a company complies with environmental standards and efficiency levels both in management (internal processes) and outputs (i.e. energy consumption, battery capacity); and b) companies that generate revenues from at least one type of energy efficiency product, service, infrastructure or technology identified in the criteria below. These criteria do not include companies or organisations that do not have both factors, independently of whether a company is part of an international or national association, network or community devoted to promoting, certifying, applying and/or investing in energy efficiency practices and businesses. Business/investment types Certification types Initiative types Energy efficiency products, services and technologies to improve industrial operations Ex: certified energy-efficient turbines, motors and engines for industrial facilities. Industrial automation and controls Ex: certified services that provide cloud computing, data optimisation systems and service management systems. ISO 50001 (or equivalent) ISO 20000 (for technology and services only) (or equivalent certification) ISO 22400 (or equivalent) ISO 9001 (or equivalent) ISO 14001 (or equivalent) Not applicable/not identified Infrastructure, technologies and systems to improve power management, distribution and storage Ex: smart grid technology and products, advanced meters and clean tech products. Technologies and products that do not use fossil fuel consumption in transport vehicles. Ex: electric vehicles. 13
WHITE PAPER - DOCUMENT FOR CONSULTATION DATA IDENTIFICATION AND SELECTION Thematic conditions Financial conditions Energy efficiency products, services and technologies to improve industrial operations Comply with one or more certifications (mandatory): ISO 20000 (or similar) ISO 50001(or similar) (for US companies only): certification from Superior Energy Performance (SEP) Comply with one or more initiative(s): Not applicable Industrial automation and controls Comply with one or more certifications (mandatory): ISO 22400 (or equivalent) ISO 9001 (or equivalent) Comply with one or more initiative(s): Not applicable Infrastructure, technologies and power management, distribution and storage 1. Identify if a company or organisation generates its revenues from one or more products, services, technology and infrastructure as highlighted in the thematic criteria (see left box); 2. For those organisations that fulfil the conditions above, include only companies and organisations that generate more than 70% of their direct revenues through energy efficiency products, services, technologies and projects as highlighted in this document; 3. (If applicable) if a company invests in R&D, determine the percentage of its investments in the targeted theme (minimum 5% of total R&D investment allocation - year); 4. (If applicable) investments in R&D can substitute or complement a company s revenue conditions in item 2; 5. (If applicable) if a company generates revenues from two or more thematic investment types (i.e. energy efficiency, sustainable agriculture, renewable energy, affordable housing, etc.) highlighted in the thematic conditions box, total direct revenues through these investment types should be greater than 50% of total revenues. Comply with one or more certifications (mandatory): ISO 50001 (or equivalent) ISO 14001 (or equivalent) Comply with one or more initiative(s): Not applicable Technologies and products that do not use fossil fuel consumption in transport vehicles Comply with one or more certifications (mandatory): ISO 50001 (or equivalent) Comply with one or more initiative(s): Not applicable 14
IMPACT INVESTING MARKET MAP 2017 Additional information Financial incentives provided by a third party (i.e. governmental agency, non-governmental organisation or private entities) to support a company s operations targeting this thematic investment would be included as revenues/ assets under management. Unless explicitly highlighted in this document, investments related to ESG considerations (a company s inputs) and internal operations (i.e. low carbon footprint practices) will not be included in this thematic theme. A company s investments in grants, philanthropic initiatives and/or investments with no capital gains will not be included as a thematic theme. A company s impact on the E&S groups and individuals generated by philanthropic or corporate social responsibility (CSR) projects and programmes will not be included in this thematic theme. A company s financial operations (i.e. company A purchases green bonds from company B) will not be included as a thematic investment and should not be included in its thematic investment revenues/assets. Only a company s direct produce, services, technologies and infrastructure related to this specific theme will be included in this thematic investment (i.e. company A providing machinery to company B that produces electric vehicles will not be included). Only direct revenues generated by products, services, technologies and infrastructure in the thematic investment above will be considered. (If applicable) if a company generates revenues from two or more types of thematic investments covered in the map, assess the individual thematic conditions of these investments and include companies and organisations that generate more than 50% of their direct revenues from two or more thematic investments covered. ADDITIONAL INFORMATION Collecting data The PRI s E&S team proposes two options to collect data based on the criteria above: 1. Use the information in this methodology as a reference: Data collection should follow all the conditions and criteria highlighted in this document. 2. Use the information in this methodology as a basic reference: Data providers or consultants may use the PRI s methodology as a reference to support their work collecting similar data for a specific theme. Common indicators The PRI s E&S team proposes two options to collect data based on the criteria above: 1. Use the information in this methodology as a reference: Data collection should follow all the conditions and criteria highlighted in this document. 2. Use the information in this methodology as a basic reference: Data providers or consultants may use the PRI s methodology as a reference to support their work collecting similar data for a specific theme. To be completed in the consultation process Indicator name Definition Expected outcomes Metrics UN-SDG target Questions The PRI listed questions that asset owners, fund-of-funds and fund managers can use during the fund selection process, investment appraisals and due diligence processes. These questions are considered voluntary. 15
WHITE PAPER - DOCUMENT FOR CONSULTATION THEMATIC INVESTMENT: GREEN BUILDINGS Definition Companies that generate their revenues from buildings designed, constructed, operated, maintained, renovated and destroyed using environmentally friendly and resource-efficient processes 2. Source United Nations-supported Principles for Responsible Investment Global initiatives alignment United Nations Sustainable Development Goals Paris Agreement BASIC CRITERIA AND CONDITIONS Criteria Companies that operate directly in the green building field and comply with two or more thematic conditions listed below. International or national certification is a sine-qua-non-condition to which any company that invests in projects, services or infrastructure targeting green buildings should comply with. Since standardised information is not available, certifications on green buildings vary drastically, and most companies in this sector follow specific country policies, the PRI has identified the following initiatives and investment types to potentially identify companies in this sector. For these criteria, the PRI does not differentiate one certification from another, and the applicability for inclusion and the classification of data will therefore be based on correspondence of investment data to one of the themes identified, meeting one or more certifications or initiatives and one or more investment types on the criteria below. Business/investment types Certification types Initiative types 16 Building design and construction Ex: focus on building an innovative green building from the groundup, or maintaining the status quo by creating a water-guzzling, energy-wasting traditional structure. Interior design and construction Ex: certified services that provide cloud computing, data optimisation systems and service management systems. Building and operation maintenance Ex: focus on adapting and improving existing buildings to be more environmentally-friendly and socially responsible. Neighbourhood development Ex: focus on improving living conditions in communities by certifying public and/or private entities that provide social or environmental services and products to a targeted community. Homes Ex: focus on building homes to be healthy, providing clean indoor air and incorporating safe building materials. Leadership in Energy and Environment Design (LEED) Green Globes US Green Building Council Green Building Council South Africa Green Building Initiative Green Building Certification Institute (GBCI) Excellence in Design for Greater Efficiencies Energy Star (for products, focusing on housing and/or office appliances) Well-Building Institute Passive House Institute Home Energy Rating System International Living Institute Any other local environmental performance standards or environmental design standards UK Green Building Council World Green Building Council The Association for the Environmental Consensus Building Green Building Index Any other local, national or international initiative or association
IMPACT INVESTING MARKET MAP 2017 DATA IDENTIFICATION AND SELECTION Thematic conditions Financial conditions For building design and construction Comply with one or more certifications (mandatory): ISO 20000 (or similar) ISO 50001(or similar) (for US companies only): certification from Superior Energy Performance (SEP) ISO 20000 (or similar) ISO 50001(or similar) (for US companies only): certification from Superior Energy Performance (SEP) Comply with one or more initiative(s) (voluntary): World Green Building Council Building and operation maintenance Comply with one or more certifications (mandatory): Excellence in Design for Greater Efficiencies Other local environmental performance standards or environmental design standards Comply with one or more initiative(s): World Green Building Council Neighbourhood development Comply with one or more certifications (mandatory): Excellence in Design for Greater Efficiencies (hospitals, educational facilities)iso 14001 (or equivalent) Other local environmental performance standards or environmental design standards 1. Identify if a company or organisation generates its revenues from one or more products, services, technology and infrastructure as highlighted in the thematic criteria (left box); 2. For those organisations that fulfil the conditions above, include only companies and organisations that generate more than 50% of their direct revenues from green building products, infrastructure, projects and technologies as highlighted in this methodology; 3. (If applicable) if a company invests in R&D, determine the percentage of its investments in the targeted theme (minimum 2% of total R&D investment allocation); 4. (If applicable) investments in R&D can substitute or complement a company s revenue conditions in item 2; 5. (If applicable) if a company generates revenues from two or more thematic investment types (i.e. energy efficiency, sustainable agriculture, renewable energy, affordable housing, etc.) highlighted in the thematic condition box, total direct revenues through these investment types should be greater than 50% of total revenues Comply with one or more initiative(s) (voluntary): World Green Building Council Homes Comply with one or more certifications (mandatory): Excellence in Design for Greater Efficiencies Energy Star (for products, focusing on housing and/or office appliances) Passive House Institute Home Energy Rating System Other local environmental performance standards or environmental design standards Comply with one or more initiative(s): World Green Building Council 17
WHITE PAPER - DOCUMENT FOR CONSULTATION Additional information There is no differentiation or hierarchy across green building certifications and initiatives. Financial incentives provided by a third party (i.e. governmental agency, non-governmental organisation or private entities) to support a company s operations targeting this thematic investment would be included as its revenues/ assets under management. Unless explicitly highlighted, investments related to ESG (a company s inputs) and internal operations (i.e. low carbon footprint practices) will not be included in this thematic theme. A company s investments in grants, philanthropic initiatives and/or investments with no capital gains will not be included as a thematic theme. A company s impact on the E&S groups and individuals generated by philanthropic or corporate social responsibility (CSR) projects and programmes will not be included in this thematic theme. A company s financial operations (i.e. company A purchases green bonds from company B) will not be included as a thematic investment and should not be included in a company s thematic investment revenues/assets. Only a company s direct produce, services, technologies and infrastructure related to this specific theme will be included (i.e. company A providing machinery to company B that produces electric vehicles will not be included). Only direct revenues generated by products, services, technologies and infrastructure in the thematic investment above will be considered. (If applicable) if a company generates revenues from two or more types of thematic investments covered in the map, assess the individual thematic conditions of these investments and include companies and organisations that generate more than 50% of their direct revenues from two or more thematic investments covered. ADDITIONAL INFORMATION Collecting data The PRI s E&S team proposes two options to collect data based on the criteria above: 1. Use the information in this methodology as a reference: Data collection should follow all the conditions and criteria highlighted in this document. 2. Use the information in this methodology as a basic reference: Data providers or consultants may use the PRI s methodology as a reference to support their work collecting similar data for a specific theme. Common indicators The PRI identified common indicators used by investment companies, global initiatives and international organisations to track, monitor and measure the performance of this thematic investment, organised by: collecting similar data for a specific theme. To be completed in the consultation process Indicator name Definition Expected outcomes Metrics UN-SDG target Questions The PRI listed questions that asset owners, fund-of-funds and fund managers can use during the fund selection process, investment appraisals and due diligence processes. These questions are considered voluntary 18
IMPACT INVESTING MARKET MAP 2017 THEMATIC INVESTMENT: RENEWABLE ENERGY Definition Companies that generate their revenues from products, services or infrastructure projects supporting the development of renewable energy and alternative fuels, including: generation, transmission and distribution of electricity from renewable sources such as wind, solar, geothermal, biomass, small scale hydro (25MW), waste energy and waste tidal. Source Combination of definitions provided by MSCI s Sustainable Metrics Methodology and Definition and FTSE Sustainable Index Methodology Global initiatives alignment United Nations Sustainable Development Goals Montreal Pledge Paris Agreement BASIC CRITERIA AND CONDITIONS Criteria Unlike other thematic investments, renewable energy thematic investments lack specific or harmonised standardisation (i.e. certifications, regulations, country policies) and there are many concepts available (i.e. countries and international organisations define renewable energy in different ways) to identify and measure renewable energy or other nonconventional energy generation sources. Based on these conditions, the PRI s criteria focuses on companies engaged in renewable energy based on their business and investment types, as highlighted below, and by broad certifications and initiatives available to define a company in this industry. Business/investment types Certification types Initiative types Energy projects (production and distribution) on: - Wind - Solar - Geothermal - Biomass - Small scale hydro (25MW) - Waste energy - Waste tidal Energy products and services on: - Wind - Solar - Geothermal - Biomass - Small scale hydro (25MW) - Waste energy - Waste tidal Renewable Energy Certificate System (RECS) (US) Green Power Programme (Australia) SPARK (Canada) ISO 50001 ISO 14001 SPARK (Canada) Global Geothermal Alliance (GGA) International Renewable Energy Agency (IRENA) International Solar Alliance (ISA) Global Clean Water Desalination Alliance United for Efficiency (U4E) Sustainable Energy Marketplace Renewable Energy and Energy Efficiency Partnership (REEEP) International Energy Agency (IEA) Renewable Energy Policy Network for the 21st Century (REN) 19
WHITE PAPER - DOCUMENT FOR CONSULTATION DATA IDENTIFICATION AND SELECTION Thematic conditions Financial conditions Energy projects (production and distribution) 3 Comply with one or more certifications (mandatory): ISO 50001 ISO 14001 Comply with one or more initiative(s) (voluntary): Be a member of a national, regional or international initiative (see suggestions in the criteria above) Energy products and services Comply with one or more certifications (mandatory): ISO 50001 ISO 14001 (for energy distribution only) Comply with one or more initiative(s) (voluntary): Be a member of a national, regional or international initiative (see suggestions in the criteria above) 1. Identify if a company or organisation generates its revenues from one or more products, services, technology and infrastructure as highlighted in the thematic criteria (left box); 2. For those organisations that fulfil the conditions above, include only companies and organisations that generate more than 50% of their direct revenues from green building products, infrastructure, projects and technologies as highlighted in this methodology; 3. (If applicable) if a company invests in R&D, determine the percentage of its investments in the targeted theme (minimum 2% of total R&D investment allocation); 4. (If applicable) investments in R&D can substitute or complement a company s revenue conditions in item 2; 5. (If applicable) if a company generates revenues from two or more thematic investment types (i.e. energy efficiency, sustainable agriculture, renewable energy, affordable housing, etc.) highlighted in the thematic condition box, total direct revenues through these investment types should be greater than 50% of total revenues 3 PRI understands by projects (based on FTSE methodology): a) companies that design, develop, manufacture, distribute or install wind turbine equipment and components, (including bearings, gearboxes, blades, and towers); and companies that supply specialist materials into the wind value chain; b) companies that design, develop, manufacture, distribute or install solar photovoltaic or solar thermal equipment and components (including wafers, cells, and modules); and companies that supply specialist materials into the solar value-chain; c) companies that design, develop, manufacture, distribute and/or install other renewable energy technologies (other than wind and solar power), including equipment for hydro, wave, tidal, and geothermal energy generation; d) companies involved in the development, operation and supply of renewable energy power generation including the provision of power from sources such as wind, solar, geothermal, hydro, biomass, landfill gas, and waste incineration; e) companies involved in the development, processing, production and distribution of bio-derived fuels for transport, heat and electrical power generation. Bio-derived fuels include bioethanol, biodiesel, and advanced biofuels such as cellulosic ethanol; and f) diversified renewable and alternative energy companies with less than the business threshold derived from any one of these subsectors, but over the threshold when combined. 20
IMPACT INVESTING MARKET MAP 2017 ADDITIONAL INFORMATION Collecting data The PRI s E&S team proposes two options to collect data based on the criteria above: 1. Use the information in this methodology as a reference: Data collection should follow all the conditions and criteria highlighted in this document. 2. Use the information in this methodology as a basic reference: Data providers or consultants may use the PRI s methodology as a reference to support their work collecting similar data for a specific theme. Common indicators The PRI identified common indicators used by investment companies, global initiatives and international organisations to track, monitor and measure the performance of this thematic investment, organised by: To be completed in the consultation process Indicator name Definition Expected outcomes Metrics UN-SDG target Questions The PRI listed questions that asset owners, fund-of-funds and fund managers can use during the fund selection process, investment appraisals and due diligence processes. These questions are considered voluntary. 21
WHITE PAPER - DOCUMENT FOR CONSULTATION THEMATIC INVESTMENT: SUSTAINABLE AGRICULTURE Definition Companies engage in sustainable agriculture businesses that conserve land, water, and plant and animal genetic resources, and are environmentally non-degrading, technically appropriate, economically viable and socially acceptable. Source Food Agriculture Organisation (FAO) United Nations-based Global initiatives alignment United Nations Sustainable Development Goals Montreal Pledge Paris Agreement BASIC CRITERIA AND CONDITIONS Criteria The FAO s definition on sustainable agriculture adopts five basics principles required to achieve sustainable agriculture practices and projects. They are: i. Improving efficiency in the use of resources is crucial to sustainable agriculture; ii. Sustainability requires direct action to conserve, protect and enhance natural resources; iii. Agriculture that fails to protect and improve rural livelihoods and social well-being is unsustainable; iv. Enhanced resilience of people, communities and ecosystems is key to sustainable agriculture; and v. Sustainable food and agriculture requires responsible and effective governance mechanisms. Since these five principles require a variety of inputs and impacts (direct and indirect), this methodology targets companies and projects that apply principles i, ii, iv and v. In addition, it is important to highlight there are key components of sustainable agriculture policies and practices to tackle the principles above: Water management and supply (target principles i, ii and v) Soil management and land-use (target principles i, ii and v) Wildlife conservation (targets principle ii) Human rights (targets principle iv) Community engagement (targets principle iv) Sustainable sourcing (targets principle ii) Food security and governance mechanisms (target principle v) The PRI s criteria to identify companies that operate in the sustainable agriculture theme are based on a combination of three factors: a) third-party certification that a specific company/organisation complies with environmental/ social standards; b) membership of one or more initiatives and organisations listed in this document; c) specific type of business or investment (the PRI will only include companies that generate revenues from one or more types of sustainable agriculture products or services identified in the specific criteria below). 22
IMPACT INVESTING MARKET MAP 2017 Business/investment types Certification types Initiative types Crop production Shellfish/fish farming Cattle/animal farming Technologies and products that do not use fossil fuel consumption in transport vehicles. Packing/manufacturing/ multi-purpose agribusiness companies Food Alliance SCS Global Services (SCS) Rainforest Alliance Fair Trade International Fair Trade (USA) Bird Friendly Standards (coffee producers only) Protected Harvest MSC Fisheries Management (for shellfish and fish farmers only) Country level certification (if applicable) ISO 50001 ISO 14001 ISO 26000 (for community and human rights) ISO 9001 (quality management) Sustainable Agriculture Initiative Platform (SAI) Ceres UN Principles of Sustainable Farming Sustainable Agriculture Network WWF Action Against Hunger Conservation International Any other local, regional, national or international initiative that works to promote and protect sustainable agriculture DATA IDENTIFICATION AND SELECTION Thematic conditions Financial conditions Crop producers, shellfish/fish farmers, cattle/animal farmers There are three levels of certifications: general (for all types of thematic business/investments); food security purpose (voluntary); and large companies operating in the sustainable agriculture businesses. General certification (comply with one or more certifications): Food Alliance Protected Harvest Fair trade (US) (international) Bird Friendly Standards (coffee producers only) MSC Fisheries Management (for shellfish and fish farmers only) Country level certification (if applicable) Any other similar certification aligned with those highlighted above (if applicable, certification should be aligned with ISO 17065) 1. Identify if a company or organisation generates its revenues from one or more products, services, technology and infrastructure as highlighted in the thematic criteria (see left box); 2. For those organisations that fulfil the conditions above, include only companies and organisations that generate more than 70% of their direct revenues through energy efficiency products, services, technologies and projects as highlighted in this document; Food security certification (if applicable) (voluntary): SCS Global Services Country level certification (if applicable) Any other similar certification 23
WHITE PAPER - DOCUMENT FOR CONSULTATION Thematic conditions Additional environmental and social management certification (if a company has more than 5.000 employees, comply with one or more certifications below): ISO 26000 (for community and human rights) ISO 50001 (environmental management) ISO 14001 (environmental management) Any other certification that target community improvements, corporate socially responsibility and labour protection Any other certification that target environmental protection Comply with one or more initiative(s): Not required / voluntary Packing/manufacturing/multi-purpose agribusiness companies Comply with two or more certifications (mandatory): ISO 26000 (for labour and human rights) ISO 14001 (environmental management) ISO 17065 (compliance management) ISO 9001 (quality management) Food Alliance Protected Harvest Fair trade (US) (international) Bird Friendly Standards (coffee producers only) Country level certification (if applicable) Any other similar certification aligned with those highlighted above (if applicable, certification should be aligned with ISO 17065) Financial conditions 3. (If applicable) if a company invests in R&D, determine the percentage of its investments in the targeted theme (minimum 5% of total R&D investment allocation - year); 4. (If applicable) investments in R&D can substitute or complement a company s revenue conditions in item 2; 5. (If applicable) if a company generates revenues from two or more thematic investment types (i.e. energy efficiency, sustainable agriculture, renewable energy, affordable housing, etc.) highlighted in the thematic conditions box, total direct revenues through these investment types should be greater than 50% of total revenues. Comply with one or more initiative(s) (voluntary): Be a member of one or more initiatives below: Sustainable Agriculture Initiative Platform (SAI) Ceres UN Principles of Sustainable Farming Sustainable Agriculture Network Any local, regional, national or international initiative 24