Point de vue

Navigating the landscape of impact investing

Impact Investing Series

Investors are increasingly putting Sustainability at the top of their agenda and recognising that factoring in environmental, social and governance (ESG) considerations can help mitigate investment risks and support companies actively driving sustainable transformations. Many investors have already adopted a range of strategies from excluding high risk companies or tilting portfolios toward companies that score better on ESG metrics. Some investors are now exploring opportunities beyond ESG and turning their attention to the real-world impact of their investments to address challenges in areas ranging from climate to inequality and healthcare.

In this first article of a series on impact investing we look at the fundamental difference between ESG and impact, the recognised standards in the field, and emerging regulations in Europe.

What exactly is impact investing?

The world needs companies that can drive positive change at scale through innovative products, services and business models. Impact investing can spur the growth of such companies and help advance solutions to address the social and environmental challenges the world faces today.

Impact investing has been defined by the Global Impact Investing Network (GIIN) as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”. To complement this definition, the GIIN’s developed four Core Characteristics of Impact Investing to outline what constitutes credible impact investing:

Building upon these core characteristics, other initiatives have emerged to provide clear reference points and help investors understand the essential elements of impact investing.

Where does impact investing stand on the investment spectrum?

From an investor’s perspective, sustainable and impact-oriented investments embrace a broad range of strategies, from responsible investing to philanthropy.

  • Responsible & Sustainable Investing: Investors evaluate how companies manage risks and opportunities around sustainability issues. ESG factors set the minimum threshold for responsible and sustainable businesses.
  • Thematic investing: Investors focus on specific themes or trends where environmental and social challenges create new market opportunities. Thematic investors seek out companies that are well-positioned to benefit from these trends, with the goal of generating returns from the growth of these companies.
  • Impact investing: Investors go beyond ESG and a thematic approach. They set measurable environmental or social goals and seek to achieve them with their capital via the projects or companies they invest in.

Source: Based on the Impact Management Project, CIIP and adapted by Deloitte

What are the main differences between ESG and impact investing?

  • Public vs. private market: As ESG investing relies on ESG data that are mainly available for publicly listed companies, ESG approaches are more common in the public market. On the other hand, impact investing has traditionally been focused on private investment markets. This is largely because these asset classes allow investors to directly fund and support the growth and development of impact-driven companies and therefore gain a clear understanding of their contribution to the overall impact being generated.
  • ESG vs. impact evaluation: While sustainable investing aims to screen companies based on their ability to manage ESG issues or risks, impact investing seeks to select companies based on their ability to deliver a specific environmental or social impact. ESG investors therefore rely on third party ESG data to categorise investments, while impact investors rely first on evidence-based research to map and assess the positive outcomes of an investment and then collect data to monitor impact performance.
  • Backward- vs. forward-looking approach: ESG ratings and data (provided by third party companies) aim to reflect the ESG performance of companies based on their annual sustainability reports – therefore their past performance and progress to date. Measuring impact in the investment process, on the other hand, requires investors to quantify the impact that a company in which it invests can generate.

What are the relevant industry standards for impact investing?

Despite the increased interest in and number of product launches claiming to be impact investments, there has been little alignment on how to manage investments for impact and the systems needed to support this. This has created complexity and confusion, as well as a lack of clear distinction between impact investing and other forms of sustainable investing approaches.

Since 2019, industry standards have emerged providing clarifications for what constitutes an impact investment, helping to mitigate the risks of “impact-washing.”

  • The International Finance Corporation (IFC) has developed the “Operating Principles for Impact Management (OPIM)”. These principles establish a common discipline and market consensus around the management of investments for impact. There were 58 founding signatories in 2019. Since then, the number has nearly tripled to 163, spanning 38 countries and representing $470 billion in impact assets by year end. The OPIM provides a reference point against which the impact management systems of funds and institutions may be assessed. OPIM also promotes transparency and credibility by requiring annual disclosures of impact management processes, with periodic independent verification.
  • In France, the Institut de la Finance Durable (IFD, formerly known as Finance for Tomorrow) developed an Impact Charter1 to promote transparent impact finance and harmonise practices. The impact charter is built upon the key principles of intentionality, additionality, and impact measurement, and defines a common framework for all asset classes, existing funds or new funds that wish to be designated as “impact funds”. Based on these principles, an evaluation grid² has been developed to assess the potential contribution of a fund to sustainable transformation. It is important to note that all funds to which this charter applies will endeavour to be classified as Article 9 within the meaning of the SFDR (unless the investor can provide a valid justification – for example, when investing in companies considered to have significant negative environmental or social impacts with clear measurable objectives to support and track their transformation).
  • The Sustainable Development Goals (SDG) impact standards are another voluntary internal management standard designed to help investors embed SDGs into their management systems and make high-level impact management principles actionable and guide the choice of which methodologies and tools should be used to appropriately measure and manage SDG impact.

Can we consider Article 9 SFDR funds impact funds?

An Article 9 fund is not an impact fund by default; it is defined by the Sustainable Finance Disclosure Regulation (SFDR) as having a sustainable investment as its primary objective. A sustainable investment needs to satisfy three criteria:

1. contribute to an environmental or social objective.
2. do no significant harm (DNSH) to any of those objectives,
3. follow good governance practices

As these funds are considered the “greenest” funds in the marketplace, they are often assumed to be impact funds. The confusion may also stem from the SFDR text itself as Article 9 funds are referred to as financial vehicles which have as their objective “a positive environmental or social impact”3.

However, the SFDR requirements for Article 9 funds do not fully align with the core characteristics of impact investing from the GIIN. Above all, SFDR does not fully distinguish between the sustainability impact of the company in which the fund has invested (‘buying’ impact) and the investor’s positive influence on that impact (‘creating’ impact / impact management). In addition, SFDR introduced concepts such as DNSH analysis and principle adverse impacts monitoring without addressing investors’ core investment and process duties to generate a positive impact.

Will regulators step up scrutiny of ‘impact-washing’?

The practice of making misleading impact claims (so-called “impact washing”) carries increasing risks.

In a sign that regulators are taking the problem seriously, the three European Supervisory Authorities (ESAs) launched a Call for Evidence on greenwashing4 which questions, among other issues, the risk of impact washing. Early June, the ESAs published their Progress reports5 in response to this consultation. In particular, the European Securities and Markets Authority (ESMA) has been assessing which areas of the sustainable investment value chain (SIVC) are more exposed to greenwashing risks – with key focus on misleading claims related to impact:

  • Misleading claims about real-world impact relate to product-level claims (in relation to investment funds, ESG securities or benchmarks) as well as to entity-level claims (applicable to issuers, asset managers and investment service providers)
  • Some of the most frequent misleading claims relate to exaggeration based on an unproven causal link between an ESG metric and real-world impact. These often consist of implying that ESG metrics mean more than what they do.
  • In most situations impact claims often would lack clarity of what impact is expected (what type of positive environmental or social outcomes) and how it is considered (which part of the investment process or portfolio construction for funds).
  • Impact claims also often lack essential information about the main aspects of any impact framework which are intentionality, additionality, and impact measurement
  • Impact claims can also stem from a confusion about the impact strategy whether ‘buying impact’ (investing in impact companies) or ‘creating impact’ (such as buying “brown” transitioning companies and turning them “green”)


ESAs’ final reports on greenwashing will be published in May 2024 and will consider final recommendations, including on possible changes to the EU regulatory framework.

In November 2022, ESMA also published a consultation paper on guidelines in relation to funds’ names sing the word “impact” or “impact investing”6.

In the UK the Financial Conduct Authority (FCA) will introduce in Q3 2023 a package of measures aimed at clamping down on greenwashing. This includes sustainable investment labels, disclosure requirements and restrictions on the use of sustainability-related terms in product naming and marketing. A new sustainable investment labelling regime for investment products will be implemented with three labels: “Sustainable Focus”, “Sustainable Improvers” and “Sustainable Impact”. Products with sustainable impact “will have an objective to achieve a pre-defined, positive, and measurable environmental and/or social impact”, alongside a “financial risk/return objective”7.

In the U.S. the SEC is similarly working on rules for greater clarity8. It has proposed ESG Fund definitions and distinguished between ESG integration, ESG-focused and ESG Impact funds9.

There is currently little clarity on the extent to which firms are making exaggerated or misleading sustainability-related claims about their investment products. A recent study from Novethic (published in December 2022) has however analysed nearly 200 Article 9 French funds and warned that a large majority of investors currently using the term “impact” or publishing an “impact report” do not meet the key characteristics of impact investing10.

As investors are turning their attention to impact investing, the need for a common language to combat the risk of impact washing is on the rise. The next articles in this series will look at the greatest challenges and best practices across different asset classes.

The impact investing landscape is complex, yet vital, to create measurable value for your stakeholders and build a more sustainable future. Deloitte can support your company in developing a comprehensive impact investing strategy which includes mitigating investment risk, identifying investment opportunities and accelerating your sustainable transformation. Contact us to discuss how we can help guide you and your company to drive both financial returns and positive social impact.

This article was written by Ophélie Peypoux, Director at Deloitte France specialising in investment management services and sustainable finance, and Isabelle Jeannequin Morin, Director at Deloitte Switzerland specialising in impact finance and sustainable development.