Investment funds aren’t what they say they are when it comes to sustainability or environmental, social and governance (ESG) criteria, according to the company behind a new impact measurement model.

The “portfolio impact footprint” tool – run by Impact-Cubed and originally for in-house use by hedge fund Auriel Equity Investors – has been endorsed by a number of European pension funds that helped test the model.

An analysis of 25 ESG funds using the tool showed that “at a modest 11% of tracking error at most, the true measureable impact of a given ESG fund in a representative sample is far from what their messaging and positioning would imply”, Impact-Cubed said in a recent report.

“From running well over 100 funds through the model since its launch we have found that funds with twice this percentage exist, and it is possible for sustainability to account for 30% to 50% more of an ESG fund’s tracking error,” it added. 

The model also uncovered vast differences between ESG funds despite them being indistinguishable on the basis of their marketing.

“The true measureable impact of a given ESG fund is far from what their messaging and positioning would imply”


“Excluding the few worst examples, it seems there is a 10-fold difference between the best quartile versus worst quartile ESG funds in terms of impact,” said Impact-Cubed.

In the worst case, a fund came out as having a negative impact, indicating the investor would have been better off investing in a tracker fund, it added.

Asset owners’ tests

Nadine Viel Lamare AP1

Nadine Viel Lamare, head of sustainable value creation at AP1

Sweden’s AP1 ran the model on a SEK20bn (€1.9bn) portfolio. Nadine Viel Lamare, head of sustainable value creation at the buffer fund, said Impact-Cubed’s initiative filled a gap in the market for assessing a fund’s alignment to the UN’s Sustainable Development Goals (SDGs).

Other analysis tools only looked at companies’ revenue streams relative to the SDGs, she said, without assessing how well a company was managed or the negatives that came from producing a given product.

“You don’t get a holistic view,” she told IPE. “That’s what I like about this tool – it’s a good attempt to take a holistic approach. There is so much focus on carbon footprinting right now and sustainability is about so much more than that.”


Magdalena Lönnroth, portfolio manager and head of responsible investment

The €1.5bn Church Pension Fund of Finland also participated in the pilot project, submitting two emerging market equity and European equity mutual funds each for analysis.

Magdalena Lönnroth, portfolio manager and head of responsible investment, said the results from Impact-Cubed’s analysis of its equity funds were “quite interesting”.

“On the emerging market side we had two ESG managers, one of which didn’t really get that flattering a result,” she said.

Lönnroth added that the Impact-Cubed analysis was for her the “first real connection” with getting the UN sustainable development goals into fund-level reporting.


Impact-Cubed was spun off as a separate company by Auriel Equity Investors last year and is in the process of seeking certification in the UK as a B-Corp, a designation for companies that use business to solve social and environmental problems.

The tool is intended to measure – and report on – the impact of any portfolio of listed securities on sustainable development and the achievement of the UN Sustainable Development Goals (SDGs).

More broadly, the company’s hope is that its service “helps separate ‘green advertising’ from ‘green investing’ and empowers investors with data to engage their fund managers”.

“Most asset asset managers tout their ESG credentials loudly and market their specific product aggressively, which is understandable considering the explosion in ESG demand,” the company wrote in a paper about the model and a test of several ESG funds. “The ESG claims have been traditionally easy to make and impossible for a client to verify.” 

The model includes 14 impact measures or indicators, based around publicly available data. Indicators range from carbon and water efficiency to gender equality, board independence and tax, but also capture companies’ business models. Companies are assessed in terms of the environmental and social “good” or “harm” they do in relation to the SDGs, captured as a percentage of revenues from products and services.

The 14 measures were developed with input from European and US investors.