Contextualising Impact Investments

The United Nations’ Global Compact (UN, 2021a) and the United Nations’ Environment Programme Finance Initiative (UNEP FI, 2021) launched in 2005 an initiative to align private investments to social and environmental goals as an strategy to achieve to the Millennium Development Goals (UN, 2021b). From an extensive consultation to leading institutional investors, “The Six Principles for Responsible Investment” initiative was born, offering a menu of possible actions for incorporating environmental, social, and governance (ESG) issues into investment practice and focusing on reducing companies’ and investors’ risks and/or assessing companies’ non-financial performance (PRI, 2021). These voluntary guidelines propose investors to abide to:

  • Principle 1: Incorporate ESG issues into investment analysis and decision-making processes.
  • Principle 2: Be active owners and incorporate ESG issues into ownership policies and practices.
  • Principle 3: Seek appropriate disclosure on ESG issues by the entities in which they invest.
  • Principle 4: Promote acceptance and implementation of the Principles within the investment industry.
  • Principle 5: Work together to enhance effectiveness in implementing the Principles.
  • Principle 6: Report on their activities and progress towards implementing the Principles.

 As part of a global trend of putting into practice these principles and trying to go further in terms of sustainability, the financial industry witnessed the emergence of “impact investing”, which is defined as investments made into companies, organisations, and funds with the intention to generate social and/or environmental impact alongside a financial return (RPA, 2021). Impact investment is different from ESG investing, which focuses on reducing companies’ and investors’ risks and/or assessing companies’ non-financial performance. In other words, impact investing is about the process of directing capital to ventures that are expected to yield social and environmental benefits as well as profits (Addy et al, 2019; for some examples, see ACUMEN, an impact investment fund).

Impact Investing Market Map

As demand started to grow for impact investments, the Principles for Responsible Investments Initiative (PRI) devised a methodology to identify investment opportunities in companies that align to this concept; it came up with the “Impact Investing Market Map”, a framework that aims to facilitate the process of identifying impact investing companies and thematic investments so that investors (such as asset owners and fund managers) can better assess sustainable investment opportunities (PRI, 2018). The Impact Investing Market Map (or better known as the “Market Map”) provides five main benefits to the investment community (PRI, 2018) (Fig. 1):

  • A common definition of a thematic investment: (i.e., water, inclusive finance, education) that is aligned with at least one international organisation, global market leader and/or data provider;
  • A basic and practical methodology: that can be used by asset owners, asset managers, fund managers, and organisations interested in mapping and identifying companies that generate revenues based on one or more investment themes;
  • A framework to structure dialogue: for asset owners interested in discussing how asset managers and fund managers can design and manage their impact investment funds;
  • A list of key performance indicators: helping asset and fund managers to collect, measure, track, and report on basic and common impact investing metrics used by market leaders and international organisations; and
  • An alignment mechanism: where impact investing companies can use the SDG targets and indicators as guiding thematic framework.

Figure 1. Market Map benefits for different stakeholders. Source: PRI (2018).

Market Map Methodology for Investing in Water Companies

Based on the three main components of the Market Map, an investor should follow the three next steps to identify a potential impact investment in the water sector:

1. Definition of water impact investments: For the water sector, the Market Map only focuses on companies operating in water and sanitation for human consumption, that is, “companies that produce or deliver products, projects and services with the scope to provide basic sanitation and safe and fresh water to humans without compromising the quality and sustainability of water resources” (PRI, 2018). This definition covers companies developing the following type of businesses: (1) water management/treatment; (2) water distribution; (3) water desalinisation; and (4) water technology (Fig. 2). Companies that carry out this type of businesses must additionally comply with the following list of criteria and principles (PRI, 2018) (Table 1):


Figure 2. Business types in the water sector under the Market Map methodology. Source: PRI (2018).
Table 1. Market Map Criteria and Principles for Water Companies. Source: PRI (2018).

2. Thematic and financial conditions: Investors looking for impact investment opportunities in the water sector should be aware that water companies must comply with their own specific thematic conditions. Table 2 provides the list of thematic and financial conditions corresponding to water business industry.

Table 2. List of Thematic and Financial Conditions. Source: PRI (2018).

Thematic Conditions
General certification (mandatory - comply with one or more certifications):
  • ISO 9004 (focuses on how to make a quality management system more efficient and effective) 
  • ISO 14001 (focuses on environmental systems)
  • ISO 17025 (focuses on general requirements for the competence to carry out tests and/or calibrations, including sampling; in this case, it provides standards for testing water quality) 
  • ISO 24510, ISO 24511and ISO 24512 (for services and activities for drinking water supply and wastewater systems)
  • ISO/TC 147 193 (for water quality)
  • ISO 14046 194 (for water footprint)
  • Any other similar certification aligned with those highlighted above (if applicable)
Comply with one or more initiative (voluntary):
Water Quality Association
Canadian Water Quality Association
Pacific Water Quality Association
Eastern Water Quality Association (US)
Any other regional, national, or international association
Additional conditions (mandatory)
  • Comply with national regulations
  • Comply with national certification bodies
Financial conditions
  • The company must generate its revenues from one or more business type highlighted in the criteria and thematic conditions.
  • For those companies that fit into the criteria above, must generate at least 70% of their direct revenues from water products, services, technologies, or projects.
  • (If applicable) if a company generates revenues from two or more thematic investment types (i.e., energy efficiency, sustainable agriculture, renewable energy, affordable housing – see PRI’s classification), total direct revenues through these investment types should be greater than 50% of total revenues.


3. Key performance indicators: Under the Market Map methodology, potential companies targeted by investors for impact investing should provide information on Key Performance Indicators (KPI). PRI uses the IRIS Catalogue, that is, a generally accepted impact accounting system that impact investors use to measure, manage, and optimise their impact. This system ensures a minimum level of consistency in a users’ impact claims and performance, makes it easier for investors to analyse and extract useful information for decision making, and facilitates the comparison of impact information. Table 3 provides the most common KPI for water utilities:

Table 3. KPIs for impact investing in the water sector. Source: PRI (2018)

IRIS ID Name Definition
PI8330 Client individuals: female Number of unique women who were clients of the organisation during the reporting period.
PI3193 Client individuals: poor Number of unique poor individuals who were clients of the organisation during the reporting period.
PI7098 Client individuals: low income Number of unique low income individuals who were clients of the organisation during the reporting period.
OI9412 Wastewater treated Volume of wastewater treated by the organisation during the reporting period.
PD5786 Water savings from products sold Volume of the water savings over the lifetime of the organisation's products for products that were sold during the reporting period.
PI2884 Water savings from services sold Volume of water savings during the reporting period due to the organisation's services sold.
PI9468 Water provided for sale: total Volume of water provided and delivered to off-taker(s) during the reporting period.
PI8043 Water provided for sale: potable Volume of potable water provided and delivered to off-takers(s) during the reporting period.


a Companies must develop projects and provide products and services that target sanitation and water
b Criteria “a” must be achieved by providing safe and fresh water to support individuals’ hygiene
c All criteria in “b” must not compromise the quality and sustainability of water resources
Accessibility Refers to provision of ‘flexibility’ to accommodate each user’s needs and preferences
Drinkability Refers to water quality that is acceptable in colour, odour and taste for each personal or domestic use
Affordability Water, and water facilities and services, must be affordable for all
Safety The water required for each personal or domestic use must be safe, therefore free from micro-organisms, chemical substances and radiological hazards that constitute a threat to a person’s health
Impact Investment Market Maps
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