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SpainNAB takes steps towards strengthening the country’s impact investing ecosystem  

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Published: 14 July 2023

The SpainNAB-led Funds Task Force identifies key characteristics for impact investing and proposes a label to differentiate impact investments from other types of sustainable investing.

SpainNAB’s latest position paper defines the key characteristics of impact investing | Plaza Mayor, Madrid by Victor on Unsplash

SpainNAB, the National Advisory Board for Impact Investing in Spain and member of the Global Steering Group for Impact Investment (GSG), has published a position paper defining the key characteristics of impact investing, which it said would contribute to building and strengthening the impact investing ecosystem in Spain. 

The consensus on what impact investing means, comes after a year of extensive study led by the Funds Task Force (FTF), a SpainNAB-led working group of some 35 impact as well as non-impact asset managers.  

The FTF concluded that impact investing should be characterised by intentionality, impact measurement and management, and investee additionality, with additional recommendations highlighting the importance of investor additionality as a fourth characteristic in certain instances.  

The FTF said it had reached its conclusions through a participatory process and the study of international frameworks, experiences, and best practices. 

Speaking to Impact Investor, Agustín Vitórica, founder and member of the executive committee of SpainNAB and co-founder and co-CEO of GAWA Capital, said that in Spain as in other markets in Europe there was confusion around the definition and labelling of impact investing, and a general consensus that current regulations did not provide the transparency needed to differentiate impact investing from other forms of sustainable investment. 

“Under the current regulatory environment, in which many ESG funds are rebranding themselves, albeit misleadingly, as impact funds, it is critical to clearly outline what differentiates impact investing from ESG investing,” he said, adding that the Spanish market was still young and more vulnerable to impact washing and the marketing of ESG funds as impact investing funds.  

“That is why we decided to launch this task force and publish our position paper, to stress the differentiators of impact investing, additionality and transformation, which are currently not included in the regulation,” he added.  

Vitórica said the Spanish government, through its development finance institution COFIDES, had expressed its intention to use the definitions to work towards regulating the sector and helping to differentiate between impact investing and other types of sustainable investment in the country. 

Characteristics of impact 

Vitórica said the Spanish consensus on the definition for impact investing went a few steps further than the GSG’s own core characteristics of impact investing by recognising the importance of targeting underserved social and environmental challenges as well as taking a long-term view in its transformative approach to generating impact.  

“We felt that global definitions were not good enough to differentiate impact investing from other types of sustainable investing,” said Vitórica. “Our methodology was based on the Impact Management Project’s type C investments, which focus on contributing to solutions to specific challenges that are underserved, where the investment generates a deep impact for some or a wider impact for many, and where the contribution remains for the long run and impact is measured and managed.” 

Agustín Vitórica, GAWA Capital

Providing greater detail on the key characteristics of impact investing, the FTF said that in regards to intentionality, impact investors would have to define ex-ante the social or environmental challenges they intended to address in their investment thesis, as well as give a reasonable narrative as to how at least 70% of their investments would positively impact these challenges through, for example, a theory of change. These aspects would then need to be incorporated into legal documents, such as a fund’s prospectus. 

On the characteristic of impact measurement and management, investors were expected to introduce impact criteria throughout the investment process and use the outcomes to learn from and improve upon the management of the investor’s own organisation as well as that of the investee. 

And regarding investee intentionality, investors were expected to finance organisations that sought to make a direct and relevant contribution to underserved social or environmental challenges and that importantly, they would have to demonstrate that this contribution was an improvement on existing market solutions or that it plugged a gap where no solution to a particular challenge existed.  

Finally, the FTF highlighted the importance of recognising investor additionality in instances where the investor actively engaged with investees with the aim of maximising the impact generated by its investments or funds as well as in instances where they expected a risk-return ratio below that of the market and offered patient, concessional or tailored financing to investees.  

Vitórica explained: “We also wanted to recognise the additionality offered by the investors themselves, in cases where on top of meeting all three of the agreed criteria, the fund made an additional contribution to the investees, either financially by, for example, providing financing to businesses that would otherwise struggle to find financing, or in non-financial ways by, for example, providing technical assistance to the investee.” 

Impact investment label 

The FTF has also recommended the creation of a code of best practice and a seal or a label to recognise bona fide impact investing. 

The aim, Vitórica said, is to create a market standard that would reflect the main characteristics of impact Investing such as additionality or transformation, which the EU’s Sustainable Finance Disclosure Regulation through its classification of Article 9 funds fell short of doing. 

“A label is essential if we want to help investors differentiate between different degrees of sustainable investing,” he said giving the example of the UK Financial Conduct Authority’s recent classification of sustainable products as either ‘sustainable focus’, ‘sustainable improver’ or ‘sustainable impact’.   

“All three of these categories could be Article 9 funds but only ‘sustainable impact’ implies additionality by targeting underserved challenges and contributing to the transformations needed to solve market failures,” he added.

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