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Guest Series: Impact investing. Discovering underlying value

Snow covered Swiss mountains

Values-based investment strategies are the zeitgeist, as more investors look towards environmental, social, governance investments (ESG), socially responsible investments (SRI), and impact investing.

The latter offers influence and transparency, but can it also deliver on results?

Willem Schramade, an independent sustainable finance advisor and academic based in Rotterdam, Netherlands, believes it can do.

However, it’s all about finding the sweet spot of creating societal and financial value. Today, he tells us what it takes to become a successful impact investor.

Thanks, Willem, for taking the time to have a chat with Centro LAW. What is your field of expertise?

My experience is a combination of academic finance and sustainable investing practice. After my Ph.D., I spent over a decade as an analyst and portfolio manager in sustainable listed equities at institutional asset managers. I developed methods to link sustainability to valuation and to measure impact.

In 2019, I published the book ‘Principles of Sustainable finance’ with Prof. Dirk Schoenmaker, and today, we apply those principles in master and executive courses.

Last year, I left my portfolio manager job to become an independent consultant in sustainable finance and impact investing.

All this fits my quest to make social and environmental value more visible – which is needed to have an economy within social and planetary boundaries. 

Can you tell us more about impact investing and the associated challenges?


Impact investing goes beyond financial purpose. It aims to achieve both an economic and a social or environmental return. This explicit aim for social and environmental benefits is called intentionality.

Pre-investment, this intentionality needs to be backed up by the use of evidence and data that show a contribution to those aims. And during investment, one needs to monitor and manage the impact performance.

As you can imagine, impact investing has many challenges, notably in data and people’s unfamiliarity with it.

As a portfolio manager some years ago, I built and managed a listed equity impact product. We had to develop our investment universe with our own criteria since there was no serious and credible data offering in the market.

While this has improved, it is still tough to clearly determine what an impact investment is and what isn’t. Ordinary finance only asks if a company or investment has a sufficiently high financial return, given its risk profile.

But an impact investor also wants to know if it creates societal value to which the typical financial institution is virtually blind. Thus, to estimate the ecological and social value, we looked at significant externalities and contributions to the United Nations’ Sustainable Development Goals (SDGs).

Although hard data was typically missing, our qualitative analysis allowed us to identify some 3,000 companies with good impact potential among our starting universe of 15,000. 

This approach allowed us to build a portfolio of stocks in the sweet spot of creating value in both financial and societal terms.

Of course, there was pushback, mainly: you say that these stocks are impact, but how can we establish a standard? So, we set to work. We got an independent score of our portfolio on alignment with the UN SDGs, an excellent sanity check, and our portfolio’s external verification that scored much better than all the indices.

Mind you, this was just a short-cut: real impact can only be assessed by looking at the context. For example, we were invested in an Indian cancer hospital chain, which delivered cancer treatment at 10% of the US cost.

So, what’s the impact then? The number of people treated at the price discount? Yes, that’s part of it, but we also found out that the chain operated in small cities, effectively allowing many more people to get treatment without living away from home, an even more significant cost saving than the lower treatment cost itself.

This taught us that you only get to the baseline of the impact when studying the investment. So far, no score can do that properly. 

The other pushback we got was about risk. Clients liked our outperformance but would point out that our tracking error was higher than that of regular global equity funds, thus exposing them to potential losses.

But in fact, our portfolio had a lower risk, as we had positive exposure to risks like carbon pricing, sugar pricing, etc. These risks are neither in the typical backward-looking models nor appropriately priced but can be hedged quite easily with impact investing. 

At Centro LAW, we specialize in designing family offices for wealth owners, entrepreneurs, and their families. While family offices are increasingly focusing on impact investments, investment performance is equally essential. How can we combine both aspects?


It is possible to do impact investing without giving up returns: you invest in the sweet spot of creating societal and financial value.

However, you would not go beyond business as usual since the market will typically fund such investments anyway. And that is, of course, a limitation to any listed equity impact fund.

Suppose you want a more profound impact. In that case, you’ll typically have to look at charitable or very early-stage investments as well, meaning that you’d better be prepared to give up some returns for a designated part of your portfolio. That particularly applies to social value, which is often more challenging than environmental value.

Many social projects yield low digit returns on small investments, which makes them unsuitable for pension funds. Early-stage projects tend to be too risky even for private equity unless they have the right experience to have a good shot at achieving scale.

Scale is a challenge in many respects, which makes a strong case for more cooperation.

I’d love to launch a human rights fund that can improve human rights data in supply chains. That would make a tremendous impact but would require much additional data gathering and hence higher costs without expected higher financial returns.

The bottleneck is that you need scale to recover the fixed costs of data gathering. Thus, you need an anchor investor willing to invest 100 million at about 50 basis points lower expected returns – impossible for a traditional investor but entirely possible for a mission-driven investor. 

Where can you find non-standard impact investment products?


I’m not impressed with the impact investment products of large asset managers. They tend to be standard products with an impact sauce – not thoughtful and integrated approaches that allow for customization to investors’ needs.

And small asset managers are hesitant to launch exceptional products unless they know there is an anchor investor. However, there are exciting innovations from niche players.

For example, some models allow for an improved risk-return by offering technical assistance, lower capital needs due to government grants and innovative cost structures, and risk reduction with certifications by the International Labor Organization.

And specialized impact advisory firms are very serious about innovation in impact measurement and valuation methods and set standards for integrity. It’s also inspiring to see family offices starting to issue impact reports

FRESH Ventures is a Dutch startup studio that uses the concept of steward ownership that safeguards the investee companies’ mission and helps avoid the squeezing of social and environmental value for short-term financial gains.

The emergence of local impact ecosystems is mitigating risks since investors and investees know each other well, support each other with local knowledge, and lead to better monitoring.

Another exciting development is a wide range of impact fintech and blockchain initiatives, such as tokenized investments and stock exchanges with committed shareholders. 

In general, what advice do you have for wealth owners who want to invest sustainably and positively impact the world around them?


The first step is to become aware and informed. Read about the topic and talk to experienced people in the field.

The next step is to set goals: what kind of impact do you want to achieve? How do you want to do it, and are you prepared to give up returns to achieve more impact? Make the goal setting as tangible as possible in terms of real investment options.

Once you know all that, you can make precise demands in your investment selection regarding expected financial returns, expected impact returns (including the key performance indicators by which they are measured), and reporting.

It can even allow you to go from laggard to leader in one go like Danish pension fund LD Pensions did with its Future Fit mandate.

Don’t go for standard solutions that sound nice, but start with your vision and needs. When designing a format for yourself, you face a real dilemma, forcing you to reflect and learn. 

About Willem Schramade

Dr. Willem Schramade is an independent consultant and researcher in sustainable finance and valuation based in Rotterdam, Netherlands. He advises financial institutions and governments and international institutions such as OECD and the World Business Council for Sustainable Development (WBCSD). Willem is also involved in various impact startups. Before that, Willem was a portfolio manager for listed impact equities and an equity analyst developing methods for integrating sustainability into investment decisions. He publishes about sustainable finance in scientific journals and teaches sustainable finance at Erasmus University in Rotterdam. Oxford University Press published his academic textbook “Principles of Sustainable Finance” (with Prof. Dirk Schoenmaker) in 2019. 


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