Bridges Ventures (“Bridges”) has today published a report revealing details of the Bridges IMPACT methodology – a toolkit used by its team for integrating environmental, social and governance (ESG) impacts into investment decisions.

Bridges is a specialist fund manager dedicated to using an impact-driven approach to create superior returns for investors and society at-large. Over the twelve years since it was founded, Bridges has developed a comprehensive methodology and set of tools to help its investment team to make informed decisions when selecting and managing investments that create societal value. The firm hopes that its specialist know-how can serve as a useful tool for others interested in ESG factors and impact and that sharing its methodology will contribute to the growth of the sustainable and impact investment sector.

Bridges has published the details of its methodology in its annual Impact Report, released today. Under the title “Bridges IMPACT Report: A Spotlight on our Methodology”, the report sheds light on the theory and practicalities of the firm’s approach, breaking down the various dimensions of impact analysis and providing illustrative case studies from across Bridges’ portfolio.

Bridges IMPACT Methodology

Bridges uses its ‘SET’ process (select, engage, track) to build ESG and impact into the entire investment cycle: selecting for impact by identifying investments whose product, location or model will deliver specific societal and/or environmental outcomes; engaging on impact by working with portfolio companies to manage impact factors that can protect and create additional value; and tracking impact performance for timely investment management as well as to report back to investors.But how is this impact analysis carried out? As with financial analysis, understanding the impact risk of an investment is as important as understanding its potential for impact return. With this in mind, Bridges has developed the “Bridges IMPACT Radar”, a tool that allows the investment team to consider impact returns and risks as they relate to each of the following four key criteria:

1. Target Outcomes: Each investment is viewed as a strategy to address a societal challenge. Bridges’ Target Outcomes analysis begins with identifying who is being affected by the problem, what they need, the barrier to improvement and what the current response is. From this background analysis, the team plots the theoretical stages necessary to address the challenge and then the investment’s specific approach to delivering each of these stages. This process enables the team to analyse an investment’s potential impact in terms of scale, depth and systemic change, as well as to ‘pressure test’ to what extent the investment’s approach to delivering social outcomes is understood and evidenced.
2. Additionality: This analysis asks whether the investment’s target outcomes will occur anyway, even without the investment. It helps the team to define the impact generated by Bridges’ investment and report to investors the societal value created by their funds.
3. Environmental, Social and Governance (ESG) factors: While Bridges select companies that have the potential to generate its intended societal outcomes, the team recognises that every investment can have other societal impacts, both positive and negative. Bridges takes these ESG factors into account in order to understand each investment’s total or ‘net’ impact.
4. Alignment: This analysis assesses the alignment between an investment’s ability to generate impact and its ability to deliver competitive financial returns. It also considers the underlying business model to analyse the alignment between the model’s business success factors and the impact it seeks to create. This allows the team to spot business models whose ability to generate impact creates a competitive advantage.

Pre-investment, the Bridges IMPACT Radar is used to identify appropriate investment opportunities. Post-investment, it acts as a portfolio management tool that allows the team to monitor the impact risk/return profile of each investment on an ongoing basis. Bridges uses its IMPACT Scorecard to capture the key performance indicators (KPIs) that relate to each dimension of the IMPACT Radar, allowing the team to track performance in an organised way and provide an integrated report to investors that shows financial and impact performance data side-by-side.

In addition to this methodology, the report highlights impact results and case studies across Bridges’ range of funds. It also provides information about Bridges IMPACT+, the firm’s advisory function that seeks to promote the growth of the sustainable and impact investment sector by offering practitioner-led advisory services. Over the last year Bridges IMPACT+ has worked with organisations such as Oxfam, Mars Inc., Comic Relief, The Rockefeller Foundation and the African Private Equity and Venture Capital Association on a variety of different projects and, only last month, it launched Shifting the Lens: A De-risking Toolkit for Impact Investment, a report written in collaboration with Bank of America Merrill Lynch.

Clara Barby, Head of IMPACT at Bridges Ventures, said: “At Bridges we are committed not only to promoting the commercial success and positive impacts of the businesses we are helping to build through our own funds but also to supporting the development of the wider sustainable and impact investment sector. This report provides an overview of our impact approach today that, while not perfect, is the result of years of experience of investing for financial returns and positive impacts. Our aim is to continue to improve our methodology through our own work and collaboration with others.”

 

Notes to Editors

Bridges Ventures (www.bridgesventures.com) Bridges Ventures LLP (“Bridges Ventures”) is a specialist fund manager dedicated to using an impact-driven investment approach to create superior returns for investors and society at large. Bridges Ventures has raised seven funds to date which total £340m: Sustainable Growth Funds I, II and III, the Bridges Sustainable Property Fund, the CarePlaces Fund, the Bridges Social Entrepreneurs Fund and the Bridges Social Impact Bond Fund.