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Measuring what matters: How impact accounting redefines sustainability measurement

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Key concepts of impact accounting

Summa’s journey on impact accounting

At Summa, we believe investments can provide new and innovative solutions for a more future-proof world. We invest to solve global challenges. To further align our portfolio with this mission, we started applying impact accounting in our annual reporting process in 2019. This approach ensures we continue to look at investments based on risk, return and impact.

Our journey began with the Impact-Weighted Accounts (IWA) project at Harvard Business School in 2019. We started with a pilot project to demonstrate the usefulness of measuring climate and employment impacts in monetary terms for a select number of companies in our portfolio. Building on this foundation, we now use impact accounting to measure climate and employment impacts for all our portfolio companies. The below is an example of climate and employment IWA for Summa’s portfolio company NG Group for 2023.

 

 

We also did two pilots on consumer impact for portfolio companies Milarex and Pagero together with researchers from Harvard Business School.

When the IWA research project at Harvard Business School came to an end in 2021, the International Foundation for Valuing Impact (IFVI) was established as an independent non-profit organization to further advance standardization of impact accounting. Since its launch in 2022, IFVI continues to build on the results of the IWA project and lead the development of standardized impact accounting practices. Summa has partnered with them to advance the field of impact accounting and pilot methodology updates as they become available, recognizing the importance of standardization when it comes to impact accounting.

We were interested in continuing our work on impact accounting and expanded the practice further across our portfolio in 2024. To support this effort, Summa engaged the consultant Valuing Impact to apply impact valuation across more aspects of our portfolio companies, recognizing their expertise in implementing these practices. We also employed Valuing Impact’s methodologies where specific impact methodologies have not yet been developed by IFVI. Valuing Impact remains a valuable partner in helping us make our impact data actionable both for us as investors and for our portfolio companies. They support us in applying impact valuation more widely across our portfolio, which means we can drive better outcomes for all stakeholders. So far, we have done pilots for portfolio companies Oda, Axion and Logpoint, one from each thematic investment area resource efficiency, changing demographics and tech-enabled transformation.

This journey reflects our commitment to transparency and sustainability, ensuring that both financial and impact performance are key to assessing the value of our investments. Through impact accounting, we can more effectively measure and manage what truly matters and address the world’s challenges to make it a better place.

Taking a step back, let us bring some clarity on the different terms that are key in impact accounting, such as impact valuation, reference scenarios and impact pathways.

What is impact accounting vs impact-weighted accounts?

Impact-weighted accounts was the term previously used for impact accounting during the proof-of-concept testing at the IWA project at Harvard Business School. During its existence IWA made groundbreaking strides in advancing the idea of financial accounts that reflect a company’s financial, social and environmental performance. By 2021, it had achieved proof of concept for impact accounting, demonstrating both feasibility and value, with more than 20 papers, two dozen pilots and four published datasets displaying monetized impact figures for over 6,000 companies.

With this validation of its work, most significantly in the call to action from the G7 Impact Taskforce for “mandatory accounting for impact as a destination,” the time was right to scale the work of translating company impacts into currency.

A name-change in 2022 to impact accounting was completed based on stakeholder feedback. The impact-weighted accounts terminology often led to the false assumption that impact accounting was being designed to replace financial accounting, as opposed to supplement it. The terminology change helped clarify the intended separation between financial accounting and impact accounting. These are parallel systems that can be intertwined but are not meant to replace one another.

Impact accounting describes a system similar to financial accounting. It measures and values the impacts of corporate entities, generating impact information to inform decisions about an entity’s effects on sustainability. This is the same concept as impact-weighted accounts; the changes was purely in terminology, not in meaning.

How is impact accounting related to impact valuation?

  • Impact accounting

     

    As outlined in IFVI’s General Methodology, impact accounting is the “system for measuring and valuing the impacts of corporate entities and generating impact information to inform decisions related to an entity’s effects on sustainability”. It focuses on generating impact information that reflects the effects of an entity not captured in financial accounting. Impact accounting emphasizes consistent and comparable metrics that translate these non-financial impacts into monetary terms, much like traditional financial accounting translates business transactions. It is designed to integrate with existing financial reporting systems, providing a holistic view of performance based on risk, return and impact. Impact accounting makes impact data accessible, actionable and comparable for real-time decision-making.

     

  • Impact valuation

     

    While impact accounting is the system for measuring and recording the impact data, impact valuation refers to a specific step in the process of preparing impact accounts. Specifically, the step of valuing an impact in monetary terms. Valuation involves assigning a specific financial value to an impact that has already been identified and measured. Impact valuation is a critical step within the broader process of impact accounting, with valuation serving to quantify the significance of the impacts recorded. Impact valuation can also be used to assess business risks related to the impact drivers used to measure societal value. This falls outside the definition of impact accounting, as impact valuation can also cover financial impact in parallel to non-financial impacts.

     

In summary:

1. Impact accounting captures and records non-financial impacts systematically.

2. Impact valuation assigns financial value to those recorded impacts. It is a step in the process of creating impact accounts, and sometimes also takes into account the risk perspective.

What are reference scenarios?

The methodologies developed by IFVI are intended to provide a baseline for the preparation of impact accounts. The IFVI methodologies guide companies to take a systematic approach to measuring positive and negative impacts that a company and their value chain generate by using a “zero-reference scenario”, which measures absolute impact of an entity. In other words, it assumes none of the measured impacts would occur in the absence of the company’s actions.

IFVI’s methodology suggests that comparing actual impacts against this baseline enables a clearer understanding of the net effects of a company’s operations as it reduces estimation errors by eliminating assumptions that changes would occur even without the company’s intervention.

Despite this reference scenario, there will be use cases where different reference scenarios need to be used. For example, to utilize impact measurement to assess the additionality of investments, or the difference in the impacts of a specific investment compared to an investment in the standard market alternative. In such cases, the reference scenario is the impact of an investment in the standard market alternative, as opposed to zero. In both cases, the transparency around reference scenarios is key.

What is an impact pathway?

The elements of an impact pathway overlap with the elements of the theory of change framework and are typically modelled as follows:

When making the impact valuation exercise, the reference scenario comes into play. Regardless of which type of reference scenario chosen, it refers to the activity to which we compare the company’s activities (the so-called counterfactual) and which in the end leads to the change in outcomes or impact:

Why is impact accounting necessary?

Impact accounting brings practicality to the complex world of corporate sustainability disclosure. Translating environmental and social impact to the language of currency makes information about impact accessible, actionable and comparable. Once impact is monetized, it can be measured and managed strategically, using the same infrastructure that already exists for financial management.

Together, financial reporting and impact accounting lay the foundation for a comprehensive assessment of an entity’s performance. Companies, investors, regulators, policymakers, employees and consumers can then make better decisions for people and the planet.

Why is impact accounting needed if companies are already reporting on sustainability?

Over the years, there has been a significant development in the number of companies reporting on sustainability topics. While this development was aimed at meeting expectations from investors, companies and their stakeholders, it has also been limited. Current metrics are difficult to understand and compare, as they are often presented in highly technical and idiosyncratic units of measurement. For example, comparing an organization’s Total Recordable Injury Rates, which measures employee injury rates, with the tons of CO2e (or carbon dioxide equivalents) it emits is difficult to do. They also frequently measure inputs and activities of a business, rather than actual impacts and outcomes, which further limits their potential to drive meaningful change.

Why should investors adopt impact accounting?

Why is impact accounting needed if companies are already reporting on sustainability?

Investors can leverage the data provided from companies in their portfolio to understand the risks, opportunities and impacts across their portfolio, to identify future investment and engagement opportunities. It enables the measurement of outcomes instead of activities and outputs. Some of the use cases for investors include:

  • Fruitful engagement with portfolio companies: By embarking on a journey together to monetize the impacts of a portfolio company, the investor and company teams can gain a deeper understanding for the impacts and identify collaboration opportunities.
  • Improved decision-making: Assessing and comparing total social value of companies can inform due diligence and investment decisions – an opportunity to monetize the theories of change that Summa develops for each subtheme.
  • Greater portfolio-level visibility: Increased transparency around potential risks and opportunities to enterprise value and understanding of their nature and magnitude.
  • Enhanced portfolio comparison: Greater comparability across companies and better understanding of the total social value created and/or destroyed across a portfolio.

Please reach out to our impact team if you want to learn more: impact@summaequity.com or sign up for our newsletter to get updates directly in your inbox.

Who is IFVI?

The International Foundation for Valuing Impacts (IFVI) is an independent nonprofit bridging the gap between financial accounting and impact measurement. IFVI works to create a just and sustainable economic system built on the full contribution of business to people and the planet. Their mission is to build and scale the practice of impact accounting to promote decision-making based on risk, return, and impact. IFVI grew out of the Impact-Weighted Accounts (IWA) Project at Harvard Business School and was established as an independent non-profit organization in July 2022.

This article is informed by methodologies from the Impact-Weighted Accounts project at Harvard Business School, the International Foundation for Valuing Impacts (IFVI) and the Value Balancing Alliance (VBA), and Valuing Impact.

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  4. Investing in sustainable aquaculture for a resilient food system

Investing in sustainable aquaculture for a resilient food system

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Stockholm, October 7th – A report published today by Summa Equity (“Summa”), as a part of its food system transformation series, identifies the future state of salmon aquaculture could yield EUR 1bn in savings, close half of the anticipated feed gap, and cut CO2 emission by two-thirds.

Aquaculture, or the farming of aquatic plants and animals, plays a vital role in addressing the growing global demand for sustainable protein sources.

This report explores the opportunities and challenges within the aquaculture sector, particularly the farming of salmon. It focuses on sustainable practices that align with ecological boundaries and the broader goals of the global food system.

Current aquaculture practices face sustainability challenges, such as habitat destruction, unsustainable feed sourcing and the management of pathogens and parasites. Despite these challenges, innovative solutions and technologies are emerging, including closed-loop systems, land-based farming and alternative feed ingredients. These innovations not only address environmental concerns but also offer compelling investment opportunities, particularly in the farmed salmon sector, which has grown significantly due to its efficiency and lower resource intensity compared to other protein sources.

Summa’s investment strategy aligns with these opportunities, targeting areas such as land-based and closed-pen farming, preventative measures to improve fish health and alternative feed ingredients. Investments in Nofitech and STIM exemplify commitment to supporting sustainable aquaculture practices that enhance both industry profitability and environmental responsibility.

As the aquaculture industry evolves, a systems-based approach that anticipates and adapts to emerging challenges will be essential. Summa is well-positioned to lead in this transformation, ensuring that aquaculture contributes to a more sustainable and resilient global food system.

Are you interested in learning more? Download the full report via the button below.

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  4. Report on climate and nature 2023

Report on climate and nature 2023

We are facing an existential environmental crisis. Climate change, depletion of natural resources, and biodiversity loss are all major issues that need to be addressed.

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4 min read

A forceful response is necessary, which will require a paradigm shift in human activity to mitigate and adapt to the impacts of these issues. It is vital that immediate action is taken to address these issues, as the longer we wait, the more difficult and costly it will be to solve them.

Summa Equity (“Summa”) has chosen to align with the frameworks Task Force on Climate-related Financial Disclosures (“TCFD”) and Taskforce on Nature-related Financial Disclosures (“TNFD”) to support the work of identifying and managing climate and nature-related risks and opportunities.

TCFD and TNFD framework

  • Governance

    A. Board of Directors
    B. Management
    C. Human rights

  • Strategy

    A. Identified impacts, dependencies, risks and opportunities
    B. Effects on Summa’s investment strategies
    C. Scenario analysis
    D. Geographical presence

  • Risk management

    A. Identification of impacts, dependencies, risks and opportunities
    B. Management of impacts, dependencies, risks and opportunities
    C. Integration of climate- and nature-related risks into risk management

  • Target and metrics

    A. Metrics for assessing risks and opportunities
    B. TCFD: Reporting concerning greenhouse gases. TNFD: Metrics of nature-related impacts and dependencies
    C. Targets

Governance

Summa’s management of climate and nature-related dependencies, impacts, risks, and opportunities

Summa is a purpose-driven, thematic investment firm that invests in and develops companies that provide new and innovative solutions for a more future-proof world. Summa is owned by its partners and the Summa Foundation.

Governance of our commitments and actions on climate and nature sits at the highest level of Summa – the Summa Board. The CEO has the overall responsibility for the operational work on climate change, depletion of natural resources, and biodiversity for Summa, but the strategic work is developed together with the thematic partners, the management team, and the impact director.

Strategy

The effects of climate- and nature-related dependencies, impacts, risks and opportunities on Summa’s business model and strategy

Summa was founded in 2016 with the aim of investing to solve global challenges. This means that Summa does not only manage the risks related to climate and nature, but also actively invests in companies that contribute to solving challenges related to climate and nature through their products and/or services. We fundamentally believe that this approach does not only futureproof the portfolio in terms of sustainability, we believe that it is also a prerequisite for good long-term financial returns. Summa integrates sustainability considerations, including climate and nature impacts throughout screening, analysis, due diligence, and the path to value creation.

Summa does not invest in certain sectors that are considered high-risk from a climate and nature perspective, e.g. fossil fuels, and mining.

Through active dialogue and collaboration, Summa also works to influence positive change within its portfolio, fostering a culture of sustainability and resilience, e.g. through impact roundtables where we invite representatives from the portfolio companies to discuss sustainability-related topics, including climate and nature.

In addition to risk mitigation, Summa seeks to capitalize on emerging opportunities arising from the transition to an economy within planetary boundaries. By investing in innovative solutions and technologies that address climate and nature-related challenges, Summa aims to generate positive environmental impact while delivering attractive returns for its investors.

Risk management

Identification, management, and integration in Summa’s overall risk management of climate and nature-related dependencies, impacts, risks, and opportunities

Summa has established processes to identify, assess, prioritize, and manage climate and nature-related risks throughout the investment process.

Climate and nature-related risks are systematically identified, assessed, and managed across the organization’s operations and investment portfolios. Summa integrates climate and nature-related risks into its overall risk management system and key risk indicators (“KRI”) reporting process. By incorporating climate and nature considerations into its risk management framework, Summa strives to mitigate potential adverse impacts on financial performance, operations, and stakeholder trust.

Metrics & targets

Metrics and targets used to assess and manage climate- and nature-related impacts, dependencies, risks and opportunities

Given the size of the companies Summa invests in, there are certain limitations to the data available on climate and nature, especially regarding supply chains. During our ownership, we support portfolio companies to become more mature on all climate and nature-related aspects, including identification, prioritization, management, and reporting.

All portfolio companies are required to report their GHG emissions and other sustainability-related information on an annual basis. The reported data is used to measure nature impacts based on Life Cycle Assessment (“LCAs”) in line with the European Commission’s Environmental Footprint (“EF”) method and use sector-based data through the ENCORE tool for a top-down assessment of the portfolio.

Summa has set Science-Based Targets (“SBTs”) for climate, including a commitment to align portfolio companies’ emissions reductions initiatives with the Science-Based Targets Initiative, ensuring that our investments contribute to global decarbonization efforts. Summa is still evaluating concrete nature-related targets, but the overall objective is to contribute to a positive development where nature, including biodiversity, ecosystems, and natural capital, is protected and thrives.

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  2. Reflections on Summa’s early steps towards impact-weighted accounting for consumers

Reflections on Summa’s early steps towards impact-weighted accounting for consumers

Summa Equity has once again partnered with the International Foundation for Valuing Impacts to advance Impact-Weighted Accounting for our portfolio companies. This article focuses on Summa’s learnings from two years of piloting Consumer IWA, as well as Summa’s broader ambitions and predictions for the future of social and environmental impact measurement.

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Our hope is that the reflections in this article will contribute to the growing debate and dialogue around the impact of corporate activities on society and encourage asset managers to adopt impact monetization methodology. For more resources on the IWA methodology and guidance on implementation, please refer to the IWA Project @ HBS.

The case for impact accounting

There is a growing recognition of how corporate activities contribute to some of today’s greatest challenges, including wealth inequality and climate change. Regulatory standards have accordingly begun to reflect a growing desire to understand the impact companies have on a range of stakeholders, including employees, consumers, and the natural environment. Companies and investors are working to align on new standards but face little cohesion or consistency in how to comprehensively account for the impact created (and destroyed) for society and its stakeholders. Herein lies the potential of IWA.

IWA captures the positive and negative impacts of a company and translates those impacts into monetary terms. All companies generate impact on stakeholders, but few companies have clear metrics to measure and manage their impacts or processes to understand impact in relation to financial value.

IWA can help improve decision-making for management teams, investors, and consumers – for example, year-over-year analysis can enable GPs to understand how the impact of their portfolio has changed over time or highlight strategic opportunities to increase impact. Moreover, when industry-level analysis is available, GPs can understand how their portfolio companies compare against those within the same industry.

At Summa, we see impact accounting as a foundational tool for advancing a more stakeholder-centered economy. Given IWA is in its early stages of implementation, Summa acknowledges the complexity herein and is committed to translating the academic nature of the methodology into a standardized and accessible process for asset managers and their portfolio companies. As early adopters of IWA, we hope our learnings and reflections will encourage others to adopt and implement this methodology.

What we have learned

Last year, Harvard Business School (HBS) led the pilot Consumer IWA analysis for two Summa portfolio companies: Milarex, an international seafood company, and Pagero, a global network enabling automated business transactions. This year, we revisited the two pilots to advance their underlying impact frameworks to establish the baseline for future iterations of IWA analysis. Below, we discuss our key observations from revisiting these two pilots.

Please refer to Summa’s annual reports for more detail on the analysis:

Monetization is only as powerful as the data available

Consumer impact-weighted accounting can be understood through three main steps:

  • 1.

    Identifying and mapping the primary pathway(s) through which a company’s core products and/or services affect its consumers and their communities;

  • 2.

    Quantifying these impacts using company data to estimate the scale of impact and a combination of industry data and best-in-class research to capture change in consumer well-being; and

  • 3.

    Valuing the change in well-being using monetized coefficients.

This process depends on the data availability and quality of monetization assumptions attributed to social and environmental impacts.

Data availability

At the company level, it is common to track sales data like volume and type of sales. However, we found that companies often lack other consumer demographic data that is central to Consumer IWA analysis. Customer reach data, which is critical to understanding the scale of a company’s impact, is often unavailable for companies that sell their products to retailers.

In the case of Milarex, we got around this limitation by applying country averages of annual seafood consumption per capita and deriving an estimate of total consumers. To accurately estimate the health benefits of Milarex products, which are one of the largest drivers of its consumer impact, we made further assumptions around the demographics of the customer base based on public data and academic research (e.g., consumers by age group, average seafood consumption per consumer).

Pagero posed a similar challenge that is common among B2B companies. While Pagero tracks transaction volume, less emphasis is placed on end-consumer data, such as the number of unique individuals served on an annual basis.

At the industry level, data completion and availability also vary, often requiring additional research to inform underlying assumptions. For Pagero, we found a lack of quality, publicly available data on the global e-invoicing market, particularly for countries in the Global South. As a result, we estimated key inputs like regional market size, VAT tax recovery potential, and future e-invoicing market growth by leveraging what data was available publicly and making conservative assumptions.

In contrast to the e-invoicing market for Pagero, we found a range of high-quality, public sources with seafood industry data relevant for Milarex (e.g., seafood consumption, seafood as a proportion of annual food consumption by country). As IWA becomes a more standardized approach, our hope is there will be greater agreement within industries regarding the data that should be tracked, collected, and reported, particularly relating to end-consumers.

Quality of monetization assumptions

While there is an emerging consensus around the need for monetizing environmental impacts (e.g., cost of carbon), monetizing social impacts is less straightforward. To monetize the impact of seafood on consumers, for example, you might link nutrient consumption to a set of health benefits – but how do you capture the economic value of that health benefit? In the case of Milarex, we used academic literature to calculate the treatment cost avoided due to seafood consumption; however, there is often a difference between the underlying populations and geographies of a study and the company impacts to which we apply them.

Pagero also confronted limitations on this front – while tax recovery from increased VAT compliance is a key impact for Pagero, it is difficult to directly link increased e-invoicing activity with a reduction in the VAT gap for all geographies. While our approach was to apply rates of VAT gap reduction due to e-invoicing adoption from academic sources, the few sources available were specific to a small set of countries. Together, these examples illustrate a need for industries to work towards sourcing and developing studies that validate key company impacts on consumers, as well as establishing universal monetization coefficients for their products and services.

Sector-wide collaboration and knowledge sharing is critical to scaling impact accounting

Concerning adoption levels of IWA, only a few market actors are engaged to date. To achieve its potential, IWA requires further methodological development and iterative pressure-testing and piloting to “get it right,” which IFVI is currently working on in partnership with the Value Balancing Alliance. For the business sector to optimize and benefit from IWA in the near term, asset managers and portfolio companies must coordinate to build up resources and capabilities. In the long term, learnings from industry testing must be codified into methodologies that include standardized impact calculations, enhancing the comparability and decision-usefulness of IWA.

For companies in sectors lacking publicly available market data like Pagero, this might look like teaming up with peer companies to commission e-invoicing market data from sector experts or co-creating and iterating on impact monetization frameworks for shared business segments. Starting with a set of shared resources will promote conducting analysis with fidelity, encourage laggards to experiment with IWA, and push us collectively towards cross-company impact measurement.

For companies like Milarex, where quality market data is relatively available, but impacts are moderately understood, there is an opportunity for peer companies to engage each other and advance their perspective on the most material impacts of their products on consumers and how to accurately capture those impacts. For example, companies producing similar foods may engage each other to align on the key health benefits from consuming those foods. These companies could also explore whether there are impacts beyond nutritional benefits – and the economic benefits of improved nutrition – that are material to report to investors and other stakeholders.

As more practitioners commit to and invest in the IWA methodology, there will continue to be improvements in data availability, measurement standards, industry-specific frameworks, and impact monetization infrastructure.

The next few years

Summa is committed to continuing to work with IFVI to build impact-weighted accounting capabilities because we believe in the need to evolve the economy’s intuition around creating value for society. We also believe that expectations around the role that companies play (or do not play) in protecting the environment and prioritizing people will only continue to increase moving forward. As we move to institutionalize IWA and impact accounting more broadly, we encourage other asset managers to collaborate and share their experiences with impact monetization.

Summa welcomes collaboration and thought partnership – please reach out if you’d like to connect!

Acknowledgments: Thank you to Zoe Bulger for lending her guidance and mentorship throughout the analysis and during the completion of this article, and to Ryan Daulton for his expertise and guidance on the impact-weighted accounting methodology.

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  4. Investing in a circular and waste-free Europe

Investing in a circular and waste-free Europe

Stockholm, April 19th – A report published today by Summa Equity (“Summa”) identifies EUR 230bn in investment needs by 2040 for new physical assets and infrastructure alone to enable the transition to a circular European economy. Also, the report highlights several opportunities across multiple sectors for the EU circular economy to reach its true potential.

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The report, “Investing in a circular and waste-free Europe,” is a sector-defining body of work which closely examines the current state of play in Europe. It highlights areas in which the EU is doing poorly, such as material production and disposal, which generates 850 Mt of CO2e per year, equivalent to 22% of total EU GHG emissions. The report, launched in conjunction with the Harvard Business School event “A trillion-dollar opportunity hiding in plain sight – the Circular Revolution”, sets a clear path toward future prosperity.

One of the most important opportunities identified by the analysis is the need for a new asset base for the circular economy: equipment, processing plants, and supporting infrastructure. The analysis estimates the cumulative investment needed in physical assets to be EUR 230bn by 2040. Such investments can also generate attractive returns, the analysis finds, with the valuation of circular markets potentially exceeding EUR 1.5tn by 2040.

Progress is being made in several regards: the EU has set targets for waste reduction and recycling in key sectors, carbon prices are rising rapidly, and companies are embracing circularity as part of their climate and sustainability strategies. Central to the Summa thesis is the need for companies to lead change and be a force for good, by implementing ESG policies and future-proofing their operations, decarbonizing at speed, and proposing solutions to systemic issues.

The report finds that “an enormous recasting of European markets for materials, waste and physical products” is due by 2030. In turn, circular business models could generate about EUR 265bn revenue in 2030, representing 15% of the physical consumer goods market, and EUR 450bn by 2040. Add savings from materials efficiency, as well as a projected quadrupling of the recycling industry, and the total revenue generated by Europe’s circular economy could be EUR 820bn by 2040. Greenhouse gas emissions could be cut by 650 Mt CO2e – equivalent to the combined emissions of France and Spain, or 55% of the total emissions from the material system in a 2040 business-as-usual scenario.

Summa Equity Founder and Managing Partner Reynir Indahl said:

“Our research and work explore the Theory of Change for achieving a waste-free and circular economy in Europe, which represents an enormous opportunity – a chance to recast the EU economy to sharply reduce waste, reduce emissions, become more self-sufficient, and maximize the value of the materials we use. With this, we seek to inspire, provoke thought, and stimulate discussion on how to drive the circular transition. Together, we can now shape a future where waste is not a problem, but a valuable resource for a prosperous, sustainable, and resilient Europe.”

Summa Equity Partner Bertrand Camus said:

“The circular economy provides Europe with a remarkable opportunity – the chance to build a revitalized, future-proof, economy, which will enhance the continent’s ability to reduce emissions and usher in a new era of industrial prosperity. As evidenced by the research, investment is required, but such outlays come with significant upsides and opportunity. Time is of the essence, and we must move fast.”

*** END ***

About Summa Equity

Summa invests in companies that are solving global challenges and creating positive Environmental, Social, and Governance (ESG) outcomes for society.

Summa’s purpose is to co-create win-win for investors, portfolio companies, and society through aligning its vision and outcomes to the Sustainable Development Goals, ensuring a net-positive impact against ESG challenges, and the potential for long-term, sustainable outperformance.

Investments are focused on industries and companies that have tailwind from megatrends within three sustainability themes: Resource Efficiency, Changing Demographics, and Tech-Enabled Transformation. Across these themes, Summa’s portfolio companies are supporting a world in transition and showing that business can be part of the solution. Summa Equity has c. EUR 4 billion (c. SEK 40 billion) assets under management.

summaequity.com

For interviews or more information, please contact:

Hannah Gunvor Jacobsen, Partner and Head of IR at Summa Equity
+47 936 41 960 | hannah.jacobsen@summaequity.com

Are you interested in learning more?

Download the full report via the button below.

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Inspiring leadership for impact: Summa Equity’s CEO Learning Journey at Harvard Business School

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Measuring what matters: How impact accounting redefines sustainability measurement

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Summa Equity completes EUR 800m Fortum Recycling & Waste acquisition, combining with NG Group: “We are creating the Nordic leader in the circular economy”

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  2. Summa’s approach to impact investing

Summa's approach to impact investing

The document reflect the most recent regulatory guidance and learnings from Summa investments made to date. Over time, we will continue to refine these guidelines based on the latest thinking and accepted standards for impact investing. Our hope is that this serves to create more transparency for Summa’s work and contributes to ongoing dialogue in the space about how to invest with impact intentionality.

  • Impact

15 min read

Purpose

We have summarized Summa Equity’s (“Summa’s”) approach to investing with impact intentionality as a complement to existing materials, including Summa Equity Fund III Pre-Contractual Disclosure. Specifically, we have described Summa’s impact investment strategy (i.e., what kind of impact investments will Summa make?) and how impact is integrated across the investment process from sourcing to investment decision-making and beyond.

The document reflect the most recent regulatory guidance and learnings from Summa investments made to date. Over time, we will continue to refine these guidelines based on the latest thinking and accepted standards for impact investing. Our hope is that this serves to create more transparency for Summa’s work and contributes to ongoing dialogue in the space about how to invest with impact intentionality.

Context: Operating in an ambiguous environment

The Sustainable Finance Disclosure Regulation (SFDR) established a transparent, standardized framework for sustainable investment. Specifically, the regulation defined two distinct classifications of sustainability-linked financial products: Article 8 funds, which are required to promote environmental and/or social characteristics among other characteristics (and ensure good governance across all portfolio companies), and Article 9 funds, which are required to have a sustainable investment objective and thus only invest in companies qualifying as ‘sustainable investments’ (as defined in the SFDR).

For funds investing under Article 9, like Summa Equity Fund III, it is important to understand what qualifies as a “sustainable investment”.

Two questions in particular demand our attention:

a) Harm: What may not qualify as a sustainable investment given the risk of potential harm? What is the threshold for avoiding adverse impacts and practicing good governance? SFDR outlines criteria to disqualify investments that create significant social or environmental harm (aligned with the Principal Adverse Impact indicators) as well as investments that fail good governance practices.(1) However, the regulation leaves room for interpretation as to the point at which an investment generates significant harm and risk.

b) Sustainable contribution: What qualifies as sufficient contribution to solving an environmental or social problem? Can contribution evolve over the course of ownership? SFDR indicates that Article 9 investments must “contribute” to social and/or environmental objectives. (2) But the guidelines do not specify what counts as “contribution”. For instance, funds can choose to align or not align sustainable investment objectives with the EU Taxonomy (which in itself has yet to be fully defined). Funds that decide not to align with the EU Taxonomy can choose other indices as a reference benchmark to define sustainability – yet even this is optional as long as they explain how sustainable investment objectives will be pursued.(3),(4)

This document clarifies how Summa navigates these questions through a succinct impact strategy and decision-relevant framework for evaluating impact throughout the investment process.(5)

Summa’s impact investment strategy

Summa creates impact by investing in companies that contribute to solving a social and/or environmental challenge, as aligned with the UN Sustainable Development Goals (UN SDGs) and including companies focused on governance in the service of helping solve environmental or social challenges. (6)

Specifically, investment opportunities reflect strong:

  • Impact alignment: Core business aligns with an environmental or social challenge, with impact outcomes identified and aligned against the SDGs and, where relevant, aligned with the EU Taxonomy (although Taxonomy alignment is not a criterion for investment)
  • Impact contribution: Business can help solve the specific environmental and/or social challenge identified, as evaluated based on six contribution considerations (see next section)
  • Impact fundamentals: Business has minimal risk of failing Do No Significant Harm test (including assessment against Principal Adverse Impact indicators) and meets basic good governance tests

Summa invests in companies at the leading edge of sustainability in their industry, as well as companies with an emerging sustainability platform that are well-positioned to evolve into leaders over the holding period. Investments focused on developing impact leaders may require more resources to support evolution of the business model. Given this added focus on investor contribution, Summa seeks to balance investments across companies already leading on sustainability and those with the promise to become leaders.

Impact in the investment process

Impact is integrated across Summa’s investment process, including impact considerations for screening, due diligence, and the path to value creation.

Impact alignment screening (from actionable deal to indicative bid)

In the first stages of the investment process, companies are screened for impact alignment within the appropriate Summa theme, and deals representing low impact potential are deprioritized. Specifically, deal teams are asked to define the core environmental and/or social challenge(s) addressed by the investment, including relevance to specific SDGs. This includes:

  • Briefly articulating the core challenge and way in which the business helps solve the challenge
  • Assessing whether the company reflects a sustainability leader today or can evolve into a leader given the core challenges addressed (preliminary perspective)
  • Generating potential impact KPIs to track progress, including output and outcome metrics

The impact alignment step creates the foundation for impact in the investment process: it clarifies how an investment seeks to achieve sustainability through social or environmental benefits and forms the basis against which contribution can be assessed during due diligence.

Impact due diligence

After the initial impact alignment stage, impact due diligence is performed. Impact due diligence includes assessment of the target company against three pillars (see Appendix for detailed criteria):

  • Performance against fundamental impact elements focused on Do No Significant Harm and good governance, with harm assessment based on a company’s industry, most relevant regulatory guidance, and region; where relevant, this pillar also includes preliminary assessment of EU Taxonomy alignment (although Taxonomy alignment is not a criterion for investment)(8);
  • Potential for contribution to address the core environmental and/or social challenges identified in screening, including evidence of impact, potential for impact at scale, additionality of impact, potential for positive impact across the value chain, collinearity between business and impact opportunities, and control over the impact; and
  • Ability to execute on this impact contribution, including Summa’s capacity to support the company’s impact contribution.

Impact due diligence is focused on the core business as it is today, and where relevant may also consider how the business is expected to evolve during the holding period. Where companies are not already leaders in sustainability, it is particularly important to evaluate the company’s ability to execute on impact and consider Summa’s capacity to support the company’s impact journey.

Deal teams often engage expert partners to lead the impact due diligence, including due diligence providers with environmental sustainability expertise as well as other technical areas of expertise as needed. Where relevant, the impact due diligence is also integrated with other diligence processes, including commercial due diligence (relates to contribution), organizational due diligence (relates to ability to execute and impact fundamentals), and legal due diligence (relates to impact fundamentals and ability to execute).

Impact in the path to value creation

Recommendations for impact-aligned value creation

Deals brought to the investment committee also include recommendations for value creation, which serve as a starting point for Summa’s approach to portfolio management during ownership (called “Via Summa”). These recommendations focus on relevant levers to advance impact based on the impact due diligence, including:

  • Critical gaps to close (value protection): Near-term priorities to address gaps related to impact fundamentals and to bolster impact capacity where needed (e.g., implementing additional good governance expectations)
  • Opportunities to advance impact (value creation): Near- and long-term priorities to integrate impact via strengthen, scale, and disruption opportunities, as part of Summa’s three-phase plan for the company

Impact through active ownership

Value creation recommendations during the deal process serve as the foundation for an active approach to portfolio management. Summa continuously evaluates relevant impact priorities and opportunities during ownership and through to exit, which is part of our ambition to future proof companies and sell at a point when company growth is aligned to impact.

Two types of impact advanced during ownership

Active ownership includes engagement and capacity building for investee companies on fundamental impact areas, for which Summa sets shared goals for all companies, such as setting Science-Based Targets and achieving gender balance in corporate boards. These 4 topics extend from the areas considered during the impact fundamentals component of due diligence.

In addition, active ownership includes helping companies advance contribution aligned with the social or environmental challenges identified in the investment process. These opportunities are often directly linked to the core business model or strategy and reflect “game-changing” impact opportunities.

Where possible, Summa seeks to align game-changing impact to a strong theory of change, including helping define a clear impact ambition, articulating how a company can achieve that ambition directly and indirectly, and tracking leading and lagging indicators.

Summa is also committed to strong impact measurement. Portfolio companies are required to report on both fundamental and game-changing impact along with financial reporting. This reporting includes data snapshots aligned with the Principal Adverse Indicators.

Appendix A: Overview of impact due diligence criteria

I. Impact fundamentals:

Does this company have the ‘house in order’ when it comes to impact fundamentals as addressed in the SFDR and, where relevant, the EU Taxonomy?

Synced with LDD and ODD

A. Do No Significant Harm:

Does the investment meet Do Significant Harm (DNSH) requirements under SFDR? If there is risk, how will Summa materially reduce risk?

B. Good Governance:

Does the company have basic good governance in place, including Via Summa compliance and EU Taxonomy minimum safeguards?
  • Does the company pass good governance test for sound management structures, employee relations, remuneration of staff, and tax compliance?

C. Red Flags:

Are there any red flags on ESG topics beyond those considered under SFDR and EU Taxonomy? For companies that are EU Taxonomy eligible, what is the initial view of Taxonomy alignment?

II. Contribution:

Does the investment contribute to addressing specific environmental and/or social challenge(s) as identified in impact alignment screening?

Synced with CDD where relevant

A. Evidence of impact:

What is the evidence base for impact?
  • Does the approach represent a known/proven solution? Does the company have a track record of driving impact outcomes?
  • What percentage of the business (e.g., in terms of revenue) is aligned with positive impact?

B. Impact at scale:

What is the potential for impact on this problem, if the company were operating globally?
  • Could the company move the needle on the challenge if global (e.g., address 5% of GHG emissions from food) or drive an inflection point (e.g., change rules of the game for all players)?
  • How does scale potential relate to depth or duration of impact?

C. Additionality:

Does the company represent additionality in impact? Will it inspire others in the industry?
  • To what extent does impact go beyond existing trends and standards, due to better performance on core sustainability issue and/or a more accelerated path to impact at scale compared to peers? Quantify relative to peers/standards wherever possible.

D. Positive across value chain:

To what extent does the company drive positive impact on the relevant challenge(s) across the full value chain, including upstream and downstream?
  • Where upstream and/or downstream factors have a large effect on relevant outcomes, how can the company influence these factors as part of its contribution to the problem?

E. Co-linearity:

Does the impact opportunity represent co-linearity with the business today or in the future (i.e., as business grows, impact grows)?
  • Where relevant, what is the business case for evolving a company’s business model to greater impact (e.g., how does it future proof the business)? What is the expected cost/investment needed?
  • How are impact goals aligned with, or in opposition to, priorities around margins, value proposition, and growth? Given this, what are potential value creation levers aligned with impact?

F. Control:

Does the company have meaningful control over impact, or indirect influence?
  • To what extent is impact dependent on customer decisions, e.g., a customer choosing a more sustainable product over a less sustainable product that is also offered or using products in a specific, more sustainable way?
  • How many steps exist between a company’s output and the desired impact outcomes? Over what timeframe will this play out, and what are the most important assumptions? Put another way, what do you have to believe about factors outside the company’s control to see impact (e.g., upstream suppliers will shift in X way)?

III. Ability to execute:

Can the company execute on this impact agenda?

Synced with ODD and LDD where relevant

A. Company impact capacity:

Does management and the organization at large have the necessary capacity, capabilities, and commitment to drive the impact agenda?

  • Where a company is not already a sustainability leader, is there a foundation of impact performance and management commitment from which to drive impact?

B. Sustained focus:

What is the risk that other business imperatives supersede or interfere with impact?
  • What resources or processes exist or can readily be added to help sustain impact over time?

C. Summa capacity:

Does Summa have sufficient ownership/control and capacity to drive impact?
  • What is needed from the Summa team as active owners, and do we have that capacity and competency? How will Summa manage risks (real and reputational)?

Impact-aligned value creation

Questions to consider as part of developing impact-aligned value creation plans

A. Critical gaps:

  • What are the most important gaps to close in the first 6-12 months to improve impact fundamentals and ensure necessary capacity to drive impact contribution over time?

B. Value levers:

  • How does impact align with value creation thesis, including priorities to Strengthen, Scale, and Disrupt? How might this evolve over the three-phase plan?

C. Risks:

  • What are the most important risks to achieving the intended impact? What are potential unintended consequences, and how might they be managed?

D. Impact metrics:

  • What are the most relevant key performance indicators (KPIs) to track progress impact contribution, including output and outcomes measures? Given current performance and what is needed to have impact, what might be reasonable multi-year targets for these KPIs?

Footnotes

(1) As outlined in Article 2.17 SFDR, investments are not sustainable if the investee company causes significant harm to environmental or social objectives and/or fails to follow good governance practices with particular respect to management structures, employee relations, renumeration, and tax compliance.

(2) SFDR Article 9 guidance refers to environmental and social outcomes specifically, while also requiring that funds ensure all investee companies have good governance practices. Summa’s approach aligns with this and recognizes governance solutions as contributing ultimately to environmental and/or social challenges.

(3) Summa has not designated an index as a reference benchmark for sustainable investment objectives. As such, under Article 9.2, Summa has included an explanation of how sustainable investment objectives will be attained per the Fund III Pre-Contractual Disclosure and the additional guidelines laid out in this document.

(4) As in Summa Equity’s Fund III Pre-contractual Disclosure: “The most relevant EU Taxonomy-related contributions for underlying investments with an environmental objective are: a. climate change mitigation; and b. the transition to a circular economy. The Fund, however, is not exclusively focused on environmental objectives, and neither eligibility nor alignment with the EU Taxonomy is a binding criterion for investment. The Fund may select investments aligned with either of the four other EU Taxonomy environmental objectives, as well as investments that are not Taxonomy aligned.”

(5) This memo focuses on Summa’s approach to navigating Article 9 requirements as relevant for investments from Summa Equity Fund III.

(6) As in Summa Equity’s Fund III Pre-Contractual Disclosure: “The binding element of Summa’s investment strategy is that our portfolio companies deliver products or services with a meaningful contribution to one or more of the United Nation’s 17 SDGs.”

(7) Summa invests across three thematic areas: Resource Efficiency, Changing Demographics, and Tech-Enabled Transformation. Each thematic area represents a set of social and environmental challenges and a theory of change. Investments should align with the challenges and theory of change for the relevant thematic area.

(8) Evaluation of impact fundamentals covers characteristics that disqualify investee companies from sustainability per SFDR guidance and as laid out in Summa Equity’s Fund III Pre-contractual Disclosure, including: commit to Do No Significant Harm principle; commit to strong standards of good governance; comply with minimum social safeguards; perform no Human Rights abuses and commit to Human Rights due diligence in supply chain; commit to reporting on Principal Adverse Impact Indicators; provide a safe and inclusive workplace; support diversity in the organization; commit to equal pay for work and reporting and addressing pay gaps; employ adequate safeguards against discrimination and harassment; do not create substantial ecological harm.

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