Our background is in modelling and measurement. What is striking when measuring performance is that every period the meter is back to 0; what you have achieved has already been discounted, it is now about adding value again. If I buy a share from another investor, my starting value is equal to the purchase value. What that investor has ever achieved in return is no longer important.

When measuring impact, it seems like that works slightly differently. Let’s look at an example: Pension Fund X invests in a 4,000-megawatt-hour wind farm in the North Sea. Without its investment of 500 million, the project would not have gone ahead. Suppose pf X sells its stake to pension fund Y after 3 years.

Measuring impact

First, we can establish that this investment meets the additionality criterion (by design 😊). The impact can be calculated in saved CO2 emissions. During construction, you obviously have first larger emissions, and from commissioning onwards you can save every year (compared to other GHG-emitting alternatives).

Should then all the impact of this project (cumulative, perpetual) be attributed to pension fund X or can the buyer pension fund Y also ‘claim’ impact. This impact attribution issue is a bit trickier… If there were multiple candidates to take over from Pension Fund X, you could say that there is not really additionality, even though there may be intentionality.

Is impact at all perpetual? First of all, let us note that impact is a relative concept; it is about savings in CO2 emissions compared to the current situation, for example. In the first few years, this relative impact is greatest; it may well be that after 10 years, global energy production is so ‘cleaner’ that the impact (saving CO2 emissions) becomes relatively much smaller. A follow-up question could be: if the emissions saved in year i and j are the same, is the impact also the same or should this be discounted?

Current practice of measurement

The label impact is granted based on several criteria. Impact is attributed to the portfolio and much less to the activity. Multiple parties claim part of the same impact. What often does not happen is the check whether there is also ‘real world’ impact. In other words, reducing emissions in the portfolio does not mean that global emissions have decreased.

Is that a bad thing?

It is positive if parties want to contribute to a cleaner world through their activities and investments. It is also fine if parties in the portfolio reduce their emissions for risk management reasons. Communicating about impact does still lead to confusion because of different criteria that are applied and the measurement methodology that seems to be insufficiently developed. As with performance measurement, attention needs to be paid to how to deal with history,