Steering an ESG portfolio solely through exclusion criteria is a thing of the past. Selecting a portfolio solely based on a best-in-class ranking is also increasingly being critically examined among asset managers. Instead, the idea of an impact-oriented approach is gaining more and more support. Impact investing has become a topic that everyone is talking about.

Unlike altruistic donations, impact investing is associated with a return objective. And unlike socially responsible investing, the reduction of pollutants and social disruptions is actively pursued in impact investing, explicitly defined, and verified through measurable metrics. In this respect, there is a common understanding: the impact must be positive, measurable, and intentional for an investment to be classified as impact investing. So far, so simple. However, currently, unanswered questions are being hotly debated among financial professionals and scholars. Questions that cannot be trivialized as mere details.

One of the critical questions revolves around the scale ("magnitude"). Timo Busch, for instance, who is a business professor at the University of Hamburg and a renowned expert on the subject, raises the question of when impact investing can truly be claimed – is it when there's a reduction of one ton of carbon dioxide or only when it reaches 100,000 tons? The concern is that the term "impact" could lose its meaning if it is applied to investments in companies whose business models have only a marginal effect on the environment or society. To prevent that, some propose setting investment target pathways based on achieving the 2 degree Celsius target for maximum global warming and deriving measurable and verifiable thresholds from them. Alternatively, there's a discussion about requiring impact investments to rank within the top 10% in terms of reducing carbon footprint within their respective industries. Professor Busch also warns against the oversimplified conclusion that "dark green" funds – known as Article 9 funds – are automatically impact funds according to the Taxonomy. Not all of these products have a direct impact, he says, citing recent studies.

The second question focuses on the fact that impact investments often have unintended negative consequences alongside their positive effects. It's unclear how an investor should deal with it. For example, constructing a senior care home can have negative environmental effects. There are significant reservations within the industry against purely mathematical offsetting of positive and negative effects, or "netting," a practice used by some providers of sustainable investments. There are also general concerns about offsetting environmental effects with social effects.

The effectiveness of engagement and stewardship – meaning active shareholder involvement to encourage companies towards more sustainable business models – is also a topic of controversial discussion. It is questioned not only in private equity financing but also in liquid public capital markets. Hanjo Allinger from the Technical University of Deggendorf is particularly skeptical, pointing out that public markets are characterized precisely by the fact that individual investors cannot exert direct influence. Other sustainability experts share the view that companies only respond when pollutants are regulated and priced, not through continuous requests from individual shareholders.

In contrast, some professionals like Alexis Wegerich, who is the Head of ESG Analytics at Norway's sovereign wealth fund Norges Bank Investment Management (NBIM), believe that "engagement can work quite well." NBIM influences companies by urging them to transition from "brown" to "green" based on transition plans. While the fund does not have a specific mandate for impact investing, the management thinks that attractive long-term returns depend on companies operating sustainably. Although documenting the impact of the companies in which the Norwegian sovereign fund invests in and whose management it urges to meet specific goals is challenging, there is "anecdotal evidence that our engagement has prompted something," notes Wegerich. Joel Prohin, Head of Investment Management at Caisse des Dépôts, the French national deposit institution, mentions that engagement is facilitated by being able to have clear conversations with the management of target companies. There is enough confidentiality "to speak frankly and have candid discussions."

Smaller asset managers are also convinced that engagement works. Coline Pavot, Head of Responsible Investments at French asset manager LFDE, observes: "Engaging in long-term dialogue with the company can create impact." Arnaud Gougler, Head of ESG and Strategic Projects at the Swiss startup Finreon, further reports that his firm successfully exerts pressure on management by taking short positions in companies with high pollutant emissions.

Another question occupying impact investors is whether generated impact can be transferred, meaning whether this impact can only be attributed to one investor once, or if it can be "passed down" to the next investor in securities trading. The supporters argue that pollution reduction continues in the following years. The German Association of Investment Professionals (DVFA) has addressed this issue with the "DVFA-Leitfaden Impact Investing", which was published on Tuesday, to provide financial market professionals with guidelines for Impact Investing.

Lastly, there's a fundamental issue that impact investors face: data availability. Without the necessary data, measuring impact – and thus the essence of impact-driven investments – is basically compromised. Corporate reports remain the primary source of data. Institutional investors are turning to artificial intelligence, hoping that AI will significantly simplify the extraction of useful non-financial information from texts in the future.