Discussion Paper
Refining the Global Standard of Impact Measurement andManagement-- Views from a Japanese Working Group-(Part 1)

GSG Japan National Advisory Board
Working Group on Impact Measurement and Management (IMM)

May 2021

TABLE OF CONTENTS
1. INTRODUCTION
2. PRINCIPLES FOR IMPACT MEASUREMENT AND MANAGEMENT IN IMPACTINVESTING: A GUIDE FOR FUND MANAGERS (English Translation)
3. DISCUSSION POINTS
A. Setting the Impact Theme: What to Look for
Point A.1. The SDGs serve as the common frame of reference, butthere also may be important impact themes outside the
SDG goals and targets.
Point A.2. The SDGs need to be used as a flexible frame of reference
and it is advisable to look at both the global and country
level goals and targets.
Point A.3. Current themes in Japan may serve as a precursor to what
other countries may experience in the future.
Point A.4. It is especially important for developed economies toconsider the many resources available for achieving SDG
Goal 3 (Good Health and Well-being).
Point A.5. It is also important to recognize local goals and indicatorsdeveloped by municipalities and community groups.
B. Setting the Impact Theme: How to Do It
Point B.1. There are two complementary approaches for integrating
impact themes into investment strategy.
4. FUTURE CONSIDERATIONS
ANNEX

a. Working Group Member List
b. Shared views for each IMM step: from the WG discussion as
captured in Chapter 4 of the Guidebook (English Translation)

1

1. INTRODUCTION
The impact investing market in Japan is on a growth path. According to the GSG
Japan’s report, Impact Investing in Japan: Current Status and Future Prospects(FY2020 Report), the domestic impact investment balance as of the end of the mostrecent fiscal year was approximately ¥512.6 billion, a significant increase from the¥317.9 billion in the FY2019 report. As impact investing efforts have progressed,
particularly among major domestic financial institutions, one of the biggest
challenges has been the lack of familiarity with and fragmented approaches to
impact measurement and management (IMM).
In the global impact investing market, the sophistication of IMM approaches has
seen a major development over the past decade – as surveyed by the Global Impact
Investing Network (GIIN), for example1 – and is also one of the key issues for scaling
the impact investing market.
Against this backdrop, in September 2020 the GSG Japan NAB established the IMM
Working Group (WG) to create a common understanding of the IMM among current
and future impact investors in Japan and to improve the quality of IMM practice. The
WG and its observers were comprised of asset owners, asset managementcompanies and venture capital firms in private and public equities (the member list isprovided in the Annex (a)). In FY2020, the Working Group met six times, to shareglobal principles, frameworks and tools of IMM, to learn from overseas and domestic
case studies, to identify points for discussion and issues to resolve, and to work
towards good practice of the IMM. Two products in Japanese ensued from this work.
One is the "Guidelines for Impact Measurement and Management for Impact
Investing", and the other is the "IMM Practice Guidebook.” Besides these two
products, this Discussion Paper was written to inform the English-speaking audienceof the WG’s work and perspective as well as to summarize the key points of the two
products, and to indicate the IMM areas that can be taken into consideration by the
global impact investing community. The WG hopes that it will contribute to refining
the global standard for IMM. This Discussion Paper is titled Part 1 as further points ofdiscussion will be raised and other papers issued as the WG continues its work.
Note: Throughout the text, the term “fund manager” is used to refer to asset
owners, asset managers, private equity and venture capital firms, fund generalpartners, or institutions responsible for managing investments for impact.

1

The State of Impact Measurement and Management Practice: Second Edition, 2020,
https://thegiin.org/research/publication/imm-survey-second-edition22. PRINCIPLES FOR IMPACT MEASUREMENT AND MANAGEMENT IN IMPACTINVESTING: A GUIDE FOR FUND MANAGERS (English Translation)
ABOUT THE PRINCIPLES
These principles have been prepared specifically for institutional investors2 in Japan
who practice impact investing.
For the purposes of this document, "impact investing" refers to investment activities
that are characterized by the intent to generate positive and measurable social andenvironmental impact3 in parallel with financial returns. The intent of theinstitutional investor is considered to be the most important element that
distinguishes impact investing from other forms of investing, and as a means ofrealizing that intent, institutional investors practice Impact Measurement &Management (IMM)4.
In practicing these principles, IMM provides a structured approach in which
institutional investors measure the impact of their investee's business andencourage improvement through engagement with the investee.
Based on the discussions in the GSG IMM Working Group, which are described
below, these principles capture the basic concepts that will contribute to therealization of effective IMM. It is hoped that each institutional investor will act inaccordance with these principles and take autonomous measures to increase theinvestee’s corporate value taking into account the generated impact.

2“Institutional investors” is a generic term for corporate investors that invest and manage funds
contributed by clients, including pension funds, life insurance companies, casualty/property insurancecompanies, trust banks, asset management companies, venture capital companies, and private equity
funds.
3“Impact” refers to “social and environmental changes and outcomes (both short term and longterm) that occur as a result of business or activities.” (GSG Japan National Advisory Committee,
Impact Investing in Japan: Current Status and Issues - FY2020 Survey)
4
As defined by the Global Impact Investing Network (GIIN), IMM "includes identifying and considering
the positive and negative effects one’s business actions have on people and the planet, and thenfiguring out ways to mitigate the negative and maximize the positive in alignment with one’s goals”
and “is iterative by nature.”

3

Backgrounds
•

•

•

•

•

The impact investing market in Japan has moved on from its infancy period
and is beginning to enter a period of growth. The impact investing balance inJapan is about 512.6 billion yen in FY2020, which is a significant increase from317.9 billion yen in the FY2019 survey.
Since 2018, major domestic institutional investors in Japan entered theimpact investing market, while many startups that have impact generation asa core part of their business have started to raise funds through the capital
market. The GSG Japan National Advisory Committee (NAB) deemed it timely
to establish the Social Equity Finance Subcommittee in August 2018, in order
to examine the key issues and look for solutions in using capital markets forsocial purposes. The Subcommittee found that one of the biggest challenges
was that there were few practical examples of IMM and its approaches were
fragmented and not systematic.
Looking at the global impact investing market, IMM approaches have become
increasingly sophisticated over the past 10 years, and as a result global
standards for IMM are being developed at a rapid pace. This is considered a
key to the future development of the “impact integrity” in the impact
investing market.
Based on this background, the GSG Japan NAB established the IMM Working
Group (the WG) in 2020, in order to create a shared understanding of IMM
among impact investors and to improve the quality of IMM practices. The
WG, comprised of practitioners of impact investing in public and private
equities from 17 companies (including observers), met six times between
September 2020 and March 2021 to share and discuss the global principles,
frameworks and tools of IMM, domestic and international case studies, andto identify issues and solutions for working on the IMM.
As a result, the WG produced two outputs in Japanese, the Principles
document and the "IMM Practice Guidebook," and the “Discussion Paper:
Refining the Global Standard of Impact Measurement and Management -Views from a Japanese Working Group” in English.

How these Principles should be Read•••

These principles are based on the contents of the "IMM Practice Guidebook"and are the points emphasized in the IMM practice that were agreed uponand highlighted by the IMM WG members.
These principles are intended to apply to impact investors in public andprivate equities, although many of the basic concepts outlined in theseprinciples are also useful for the IMM in other asset classes.
The WG believes that each institutional investor should devise its own way ofworking with the principles tailored to its own circumstances. This is because4•IMM practice may vary depending on the asset class and the end investor aswell as other factors. As we are witnessing a rapid development of IMM,
global norms may shift as well. In light of these factors, the principles should
not be viewed as detailed rules but precisely as principles with which each
institutional investor should navigate its own IMM practice appropriately.
The WG expects that domestic institutional investors in Japan who are
engaged in impact investing will accept the principles of "Responsible
Institutional Investor" (the so-called Japanese Stewardship Code). In addition
to the principles in the Code, the principles in this document should beconsidered for impact investing.

Expectations behind the Principles••

These principles are based on the discussion of the WG and summarize thecurrent global standards of IMM as well as practical knowledge from Japanand overseas. The WG deemed it appropriate to incorporate the global
approach because, by doing so, 1) institutional investors will be able tocommunicate with various stakeholders around the world using a common
language, and 2) by using the common language, fund managers will be able
to raise capital and access possible investees much more broadly. At thesame time, the WG felt that it was necessary to compile principles inJapanese based on the market environment and practices in Japan so thatthey could be widely shared with institutional investors in Japan. The WG
strongly hopes that IMM norms and practices in Japan will not become
isolated but rather will follow the front-runner practices in the world andproduce best practices from Japan.
The WG believes that it is important for institutional investors to practiceIMM by referring to the principles and the guidebook, and to share theirlearning with each other. This will serve as a foundation for building an
ecosystem in which risk money and necessary support are provided tobusinesses and entrepreneurs (including social entrepreneurs) who take on
the challenge of solving social issues through business activities.

The Principles
Institutional investors practicing impact investing should follow these principles intheir investments to achieve impact and to ensure its sustainable expansion.
Principle 1: Institutional investors should clearly articulate impact generation in theiroverall corporate strategy and formulate impact fund’s investment strategy based on
the overall strategy.

5Principle 2: Institutional investors should design an appropriate IMM process, taking
into account globally adopted approaches and methods, to ensure that investments
are made in line with the impact fund’s investment strategy.
Principle 3: Institutional investors should develop a deep understanding of the
impact generated by the investees. This should be done by working closely toaccurately understand the external and internal environment of the investee(monitoring) and by conducting constructive and purposeful dialogue with them(engagement). This will thereby contribute to the sustainable augmentation of theinvestee’s corporate value.
Principle 4: When selling an equity stake of the investee, institutional investors
should consider the sustainability of the impact generation to ensure that the impact
created by the investee is not lost.
Principle 5: Institutional investors should regularly report to end investors on how
they are realizing their impact intentions and contributing to the sustainable
augmentation of the investee’s corporate value.

Principle 1: Institutional investors should clearly articulate impact generation in
their overall corporate strategy and formulate impact fund’s investment strategy
based on the overall strategy.
With their intent to generate positive and measurable social and environmental
impact in parallel with financial returns, institutional investors facilitate theaugmentation of the corporate value of the investee through consideration of the
impact and promote its sustainable growth. By doing so, the institutional investors
seek to increase the medium- to long-term financial and social returns for theirclients and beneficiaries.
Based on this understanding, institutional investors should clearly articulate in theiroverall corporate strategy how to realize the intentions of impact investing as
entities that manage finance in the economy, bearing in mind their own position in
the investment chain from clients to investees to beneficiaries.
This strategy should incorporate fund management approaches that express value
proposition to society which includes the establishment of impact themes and theirintegration into the strategy, the degree of compatibility between economic andsocial returns, and the investment decision-making process utilizing IMM.
For more details on the above, refer to the IMM Practice Guidebook.

6

Principle 2: Institutional investors should design an appropriate IMM process,taking into account globally adopted approaches and methods, to ensure thatinvestments are made in line with the impact fund’s investment strategy.
To realize the intentions of impact investing in line with the impact fund’sinvestment strategy, institutional investors should design and implement an IMM
process, which is a systematic method, to measure the impact of the investee’sbusiness and to encourage improvement of the business through engagement. In
order to ensure a certain level of IMM quality of the impact fund, it is important toapply a consistent IMM process to all investments made by the impact fund.
The IMM process should include: identification and multi-faceted analysis of positive
and negative impacts of the investee’s business at the time of the investment
decision; setting of key impact KPIs and targets; post-investment monitoring andengagement (Principle 3); sell/exit decisions that take into account the ongoing
impact of the investee’s business (Principle 4); and impact performance reporting(Principle 5).
For more details on the above, refer to the IMM Practice Guidebook.
Principle 3: Institutional investors should develop a deep understanding of the
impact generated by the investees. This should be done by working closely toaccurately understand the external and internal environment of the investee(monitoring) and by conducting constructive and purposeful dialogue with them(engagement). This will thereby contribute to the sustainable augmentation of theinvestee’s corporate value.
After making an investment, institutional investors should keep track of the impact
being generated by the investee’s business in reference to the intended impact
analyzed at the time of investment decision by monitoring the progress of the
impact KPIs. At the same time, the engagement with the investee should be geared
toward augmenting its corporate value from a medium- to long-term perspective.
In the monitoring and engagement process, it is important to lay out its key
elements in accordance with the impact fund’s investment strategy, which may
include challenges surrounding the investee's progress toward the impact KPIs,
issues of negative impact and the response, etc., as well as the financial status.
Although the method and depth of engagement will vary depending on the asset
class and the business stage of the investee, it is important to conduct acollaborative dialogue in line with the impact fund's investment strategy. In the caseof private equities, it is suggested that the investor provide hands-on support so that
the IMM process becomes a common language with the investee's stakeholders.
7For more details on the above, refer to the IMM Practice Guidebook.

Principle 4: When selling an equity stake of the investee, institutional investors
should consider the sustainability of the impact generation to ensure that the
impact created by the investee is not lost.
Institutional investors should consider when and how to sell their equity stakes inline with the intentions of the end investors. When making a decision to sell,institutional investors should give due consideration to ensuring that the impact
created by the investee will be sustained.
For example, in the case of private equities, when making an exit decision, in
addition to the sale price, it is important to understand the impact the investee isgenerating and to carefully consider how it can be further expanded.
In the case of public equities, although institutional investors may make a decision of
the sale based on the financial performance of the investee, it is important toestablish an investment process that makes it possible to work on a long-term
investment as well as an on-going engagement with the investee that seeks togenerate impact.
For more details on the above, refer to the IMM Practice Guidebook.

Principle 5: Institutional investors should regularly report to end investors on how
they are realizing their impact intentions and contributing to the sustainable
augmentation of the investee’s corporate value.
Institutional investors should regularly report to end investors on the extent towhich their impact intentions have been realized, as end investors invest in impact
funds with the intention of generating impact. In doing so, a combination ofquantitative and qualitative information should be reported to the end investor,
such as the comparison of the performance of the impact generated with the impact
KPI targets and the verification of the positive and negative impacts. By reviewing
the investment activities based on this information, the lessons learned can be used
to improve future impact investing and how best to conduct the IMM.
While the development of IMM is rapidly progressing in global impact investing
markets, there are few examples of IMM practice in Japan. Thus, it is important for
institutional investors in Japan to share the lessons learned with both the global
market and the Japanese investment industry in order to repeat the learning and8

improve the IMM process by utilizing familiar business cycle approaches such as the
PDCA (Plan-Do-Check-Act).
For more details on the above, refer to the IMM Practice Guidebook.

93. DISCUSSION POINTSIt is the WG’s understanding that the IMM approach has been maturing through an
iterative process, with the co-development of principles and frameworks on the one
hand and the actual practice on the other. The WG used the 9 principles of the
Operating Principles for Impact Management as the main reference point5 while also
paying attention to other standards and frameworks developed by PRI,6 UNEP-FI7
and others. The WG discussions have resulted in a Guidebook proposing a 4-stepframework, outlined below.
Step1:
Step2:
Step3:
Step4:

Investment Strategy
Organization and Structuring
Monitoring and Engagement
Sell/Exit and Reporting

The WG held a series of discussions on each of these steps. In this Discussion Paper,
two points related to Step 1 are raised in the hope that they will contribute torefining the global understanding and standard for IMM.
A. Setting the Impact Theme: What to Look for
Point A.1. The SDGs serve as the common frame of reference, but there also may be
important impact themes outside the SDG goals and targets.
The SDGs provide a useful common frame of reference that can be used ininvestment strategies in a variety of country and societal contexts; however, there
can be other, universally-appealing impact themes that fall outside of the exact
framing of the SDG goals and targets.
As observed in the
Guidebook, insetting the impact
theme – which
serves as the firststep in crafting theinvestment
strategy – many
impact funds use
the Sustainable
Development
Goals (SDGs) as
expressed in the
Sustainable Development Goals (SDGs)
UN 2030 Agenda as
the overarching frame of reference for working on global as well as national and5

https://www.impactprinciples.org/9-principles
Investing with SDG Outcomes: A Five-Part Framework, https://www.unpri.org/download?ac=10795
7
The Principles for Positive Impact Finance, https://www.unepfi.org/wordpress/wpcontent/uploads/2017/01/POSITIVE-IMPACT-PRINCIPLES-AW-WEB.pdf
610

local issues. Many members of the WG pointed out that asset owners in Europe andthe U.S. require asset managers to develop impact statements based on the SDGs.
Many commented that the use of global, widely-accepted impact themes such as the
SDGs is effective in setting common expectations with end investors and investees.
Because of the acceptance of SDGs and their universality (i.e., applicable to bothdeveloping and developed economies), the global community has acquired acommon language for speaking about critical social and environmental issues that
affect all.
At the same time, however, the WG members expressed some reservations in using
the SDGs as if they covered all the issues that investment strategies need to address.
The WG observed that there were some examples of impact themes which did notnecessarily correspond directly to any particular SDG goal, such as financial inclusion
and affordable housing in the U.S., and quality of life that is increasingly seen as amajor topic in many countries including Japan. In those instances, investments weremade even though they were not in line with the SDGs and their relevant targets andindicators.
Point A.2. The SDGs need to be used as a flexible frame of reference and it isadvisable to look at both the global and country level goals and targets.
The SDGs need to be viewed as a flexible frame of reference, rather than a strict setof targets and indicators. It is also important to recognize and examine country
level SDGs where the impact investing is going to take place.
Some members of the WG suggested that the SDGs be viewed as a flexible frame ofreference, rather than a strict set of targets and indicators for each goal. While theSDGs may be comprehensive, the set of targets for each goal does not necessarily
provide a precise prescription of what needs to addressed in pursuing the respective
goal. Although the SDGs have a universal appeal, they focus on developing andemerging countries at the target and indicator levels.

11

It is advisable to look at both the global level goals and targets and the country level
SDGs where theinvestment takes
place because many
countries have also
developed anational SDG plan.
Each year at the UN
High-Level Political
Forum (HLPF),
member states
provide a Voluntary
National Review(VNR) of thecountry’s plan andprogress inachieving thenational goals.8
Accordingly, for
The 8 Pillars of Japan’s SDGs Implementation Guiding
example, the Japanese
Principles
government provided
its first VNR in 2017.9 In it, the SDGs Implementation Guiding Principles of theJapanese government – “which represent Japan’s national strategy to address the
major challenges for the implementation of the 2030 Agenda”10 – were introduced.
The Implementation Guiding Principles reclassified the SDGs’ 17 goals into 8 pillarsaligned with the “Five Ps” of the 2030 Agenda (people, prosperity, planet, peace andpartnership).
Point A.3. Current issues in Japan may serve as a precursor to what other countries
may experience in the future.
It is advisable to regard the Japanese demographic shifts and their impact on theeconomy, as a precursor to what may be expected in other countries.
Japan has serious problems related to the declining birthrate, ageing population,
population decline, over-ageing and loss of economic activity in rural communities.
As of 2015, Japan’s “ageing rate”11 is 26.0%, compared to an Asia average of 7.5%
and a global average of 8.2%.12 As the figures show, looking at the current situation,
Japan may seem exceptional however it must be viewed as a precursor to what
other economies will face in a few decades.
8

https://sustainabledevelopment.un.org/vnrs/
Japan’s Voluntary National Review: Report on the implementation of the Sustainable Development
Goals, https://sustainabledevelopment.un.org/content/documents/16445JapanVNR2017.pdf
10Ibid., p.4
11“Ageing rate” is defined as the number of persons of 65 years or older divided by the total
population.
12
According to data query at the UN DESA Population Division,
https://population.un.org/wpp/DataQuery/912Global Trend of the Old-Age Dependency Ratio

According to a UN
report,13 the old-age dependency ratio (the number of old-age dependents [persons
aged 65 years or over] per 100 persons of working age [aged 20 to 64 years]) is on
the increase globally. The ten countries/areas with the highest old-age dependents
ratio in 2050 will include not only countries/areas in Asia (Japan, Korea, Taiwan andHong Kong) but also in Europe (Spain, Greece, Italy, Portugal and Slovenia), and overtime the gap between
Japan and othercountries will diminish.
These demographic
changes are having a big
impact on economic andsocial policies, and thus
innovations in businessthat address theseconcerns could attract
investments. While theinflow of private sector
funds may potentiallywork towards dealing with this issues, the importance of addressing them is not yet
recognized globally. The
WG pointed out dealing
Countries/Areas with the Highest Old-Age Dependencywith demographic shifts
Ratio (2019 and 2050 projection)
as a major concern insetting the impact theme as well as in communication with institutional investors in
Europe and North America.
Point A.4. It is especially important for developed economies to consider the many
resources available for achieving SDG Goal 3 (Good Health and Well-being).
13

UN Department of Economic Social and Affairs, World Population Ageing 2019,https://www.un.org/en/development/desa/population/publications/pdf/ageing/WorldPopulationAge
ing2019-Highlights.pdf

13

There are many global resources available for achieving well-being indicators,
beyond the SDG targets/indicators, that are worth exploring as they provide usefulreference points and benchmarks for measuring human conditions in the 21st
century.
Development of well-being measurements has been in progress over many years, intandem with the development and implementation of the SDG goals and targets. In
setting the impact themes, especially in the context of developed economies, this isespecially important to recognize because SDG Goal 3 (Good Health and Well-being)targets primarily cover the concerns of developing countries, such as maternalmortality, neonatal and under-5 mortality, infectious diseases (AIDS, tuberculosis,
malaria), deaths and illnesses from pollution and contamination, and universal
health coverage. These are very important targets but may not address the main
issues related to living conditions and well-being concerns of many nations.
Well-being indicators
are being developedby many standard andframework settingorganizations. The
effort of OECD and its
Better Life Initiative14
is worth noting, as it
has been attempting
to aggregate different
well-being related
indicators to acoherent set ofunderstanding about
the concept andmeasurements. In
OECD’s Approach for Well-being
2011, the OECDpublished a compendium which serves as the basis of how to aggregate related
aspects of well-being.15 The OECD’s approach distinguishes between material living
conditions and quality of life on the one hand, and the conditions required to ensure
their sustainability over time on the other. Material living conditions (economic wellbeing) are shaped by the GDP but GDP calculations also include activities that do notcontribute to well-being. Quality of life, a key concept in defining non-monetaryattributes of individuals, is a primary component in understanding well-being and it
includes not only health status, education and skills but also work and life balance,social connections, civic engagement and personal security. The sustainability of thesocio-economic and natural systems addresses the living environment that affects
people’s well-being and their measurement, and has been developing in the naturaland social capital approaches, for example.
14
15

https://www.oecd.org/statistics/better-life-initiative.htm
https://www.oecd.org/sdd/47917288.pdf

14Point A.5. It is also important to recognize local goals and indicators developed bymunicipalities and community groups.
Making use of locally developed sustainable goals and indicators is useful forinvestment as it promotes both local ownership and a common understanding ofwhat is important for the end beneficiaries.
Partly inspired by the SDGs’ approach of country and local ownership, many local
governments and their residents in different parts of the world have been working
on developing frameworks for understanding and measuring the health of thecommunity. In Japan, this is accelerating after the adoption of the SDGs and thegovernments’ initiatives to select “SDGs Future Cities” started in 2018. In 2020, 33
municipalities from across Japan were selected and each have set diverse
sustainable development themes including disaster prevention/readiness,interconnecting forest, food, agriculture and life sciences, local art festivals andcommunity revitalization, and circular economy development.16
An example of local and community
initiatives related with the SDGs but notdirectly linked with the “SDGs Future Cities,”
is the city of Kurobe (Toyama prefecture),
which in partnership with the Community
Indicators Consortium17 in the U.S.,
developed “5 Goals for Kurobe”. These 5
Goals are 1) increase the number of people
active in the community; 2) initiate
community dialogue; 3) ensure health andwelfare for all; 4) use the power of people
The 5 Goals for Kurobe
under 40; and 5) achieve goals throughpartnerships. It is notable that these goals have been developed through the active
participation of community groups and local residents. A set of indicators for eachgoal is currently under development.
B. Setting the Impact Theme: How to Do It
Point B.1. There are two complementary approaches for integrating impact themes
into investment strategy.
While it may seem straightforward to set the impact theme first and then work on
the investment strategy, a combination of top-down and bottom-up approaches isuseful to avoid imposing investor’s agenda to investees and to ensure effective
partnerships.

16https://www.kantei.go.jp/jp/singi/tiiki/kankyo/teian/2020sdgs_pdf/sdgs_r2futurecity.pdf(Japanese only)17
https://communityindicators.net

15

As captured in the Guidebook, from interviews with the impact investors outside ofJapan and the WG discussions, the WG observed that there are two approaches for
integrating the SDGs or other impact themes into investment strategies, which canbe called “top-down” and “bottom-up”.
If the SDGs are used as the framework in the top-down approach, the investment
manager establishes specific SDG-related impact themes for investment in line withthe end investor's intentions. In the bottom-up approach, impact themes are set
based on the market research of potential investment targets, regions and sectors,
and then relevant SDGs are identified after analyzing the proximity of the impact
themes to each SDG goals and targets. The WG discussed how each institution isusing these approaches for setting impact strategies. The respective advantages issummarized in the chart below.
Top-down
approach••
Bottom-up
approach•

It is easy to gain global understanding because SDG
goals and targets are recognized as important andpressing issues.
Many of the SDG goals only provide a high-levelstatement. In order to make them useful in theinvestment strategy, it is important to break themdown into operationalizable sub-themes.
Making the impact theme and strategy aligned with theinvestee interest and priorities is easier because it
facilitates better communication and partnership
between parties.

The WG also observed that there were many cases where both top-down andbottom-up approaches were used in a combined and complementary manner todevelop strategies. For example, one domestic investor formulated its own ESG
statement and set impact themes based on the statement as well as the SDGs. At thesame time, the investor connected commonly recognized SDG-related solutions to
specific social issues the investee is trying to address and incorporated them into
strategies for that particular investee.

16

4. FUTURE CONSIDERATIONSAs previously mentioned, this discussion paper is Part 1 as it is the WG’s intention tocontinue discussion and to produce other papers that might be beneficial for the
global discussion of impact investing and for developing a common understanding ofand setting a good standard for the IMM. The points that the WG came up with as“shared views” and are introduced in Chapter 4 of the Guidebook are provided in
Annex (b).
The WG hopes that this paper is useful in deepening the sophistication of IMM
practice and the WG stands ready to contribute further to the evolving global
discussion.

17

Annex A: Working Group Members
BlackRock Japan
Yutaka Naito, Sustainable Investing
The Dai-ichi Life Insurance Company, Limited
Yoichiro Kuroda, Investment Planning Department
Global Brain Corporation
Nagisa Shigetomi, Investment Group
Japan Exchange Group
Takumi Matsuo, Corporate Strategy
Japan Social Innovation & Investment Foundation
Masaaki Amma
Mizuho Bank, Limited
Kotaro Sueyoshi, SDGs Business Desk, Commercial Finance Department for
Small Corporations
Nissay Asset Management Corporation
Toshikazu Hayashi, ESG Investment Promotion Department
Nomura Asset Management Co., Ltd.
Toshiyuki Imamura, Responsible Investment Department
Shinsei Corporate Investment Limited
Chunmei Huang
Sayaka Takatsuka
Social Investment Partners
Tomoya Shiraishi
Sumitomo Mitsui Trust Holdings, Inc./Sumitomo Mitsui Trust Bank, Limited
Minoru Hayashida, Sustainability Management Department
Beyond these members, observers from approximately half a dozen institutions also
participated in the WG discussions.
Research and Secretariat Staff
Blue Marble Japan, Inc.
Katsuji Imata
Naoki Chiba
FUNDREX Co., Ltd.
Chie Hirao
Japan Exchange Group
Nao Sudo, Corporate Strategy
Japan Social Innovation & Investment Foundation
Fumi Sugeno
Noriko Sawai
Japan Fundraising Association
Yoshihiro Kamozaki
Junko Shimizu

18

Adviser
Sustainalytics
Masato Takebayashi

19Annex B: Shared views for each IMM step: from the WG discussion as captured in
Chapter 4 of the Guidebook (English Translation)
Chapter 4 of the Guidebook, based on the various perspectives of domestic
and foreign investors introduced in the WG discussion, includes a summary table of"shared views". This describes all the points WG members agreed upon andparticularly emphasized. It is hoped that not only new IMM practitioners but also
those who are already implementing IMM will refer to these in order to promote
and refine good practices of IMM.

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STEP 1: Investment Strategy
Key Considerations
Shared Views of the WG
The fund manager sets the impact
It is important:investing within the scope of the• For a fund manager to promote
corporate strategy and formulates
impact investing as part of its
an investment strategy for the
corporate strategy.
impact fund in line with that• To clarify the investment’s value
strategy.
proposition in developing an impact
fund investment strategy by making
use of logic models or theory ofchange when appropriate.
In order to realize the impact
It is important:intentions of the fund manager,• To employ concepts, such as theconsider the following in
SDGs, that are widely known and candeveloping an impact fundobjectively explain the importanceinvestment strategy: 1) theof the fund’s impact theme.
establishment of impact themes• To balance financial and social
and their integration into theconsiderations while recognizing
strategy, 2) the expected degree ofthat the emphasis on each will varyfinancial return as well as social
depending on the fund’s investment
impact, and 3) the appropriate
strategy.
IMM implementation structure• To properly train the deal team to(investment decision-making
manage the IMM processprocess and team organization).
implementation. In making
investment decisions, financial
analysis and IMM analysis results
should be considered in acomprehensive manner.
In order to realize the impact fund
It is important:investment strategy, the fund• To stimulate demand from end
manager provides detailed
investors by providing a wide range
explanations to potential endof information including the basic
investors, including the IMM
concept of impact investing, market
process, impact performance andinformation and the IMM process.
overseas market research reports.
STEP 2: Organization and Structuring
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Key Considerations
The fund manager implements
appropriate IMM processes toensure that investments are madein line with the impact fundinvestment strategy. In doing so, aconsistent IMM process that canbe applied to all investments madeby the impact fund needs to be put
in place to ensure quality of the
IMM process.
In designing the IMM process,examine how the fund manager
will contribute to achieving impact
through each impact fund
The fund manager designs anappropriate process in light of each
impact fund's investment strategy,
drawing on various domestic andinternational methodologies. The
general process of the IMM is asfollows.
o Identify the outcomesgenerated by the investee’sbusiness andcomprehensively analyze
the overall impact.
o Establish “impact
indicators” that represent
the outcomes of thebusiness.
o Identify the most important
impact indicators among
the impact indicators(“impact KPIs”) and set
targets for the impact KPIs.
o Gather information frominvestees, macroeconomic
data, etc., and use it tomake investment decisions.
For each investment, the fundmanager identifies and evaluates
the negative social andenvironmental impacts of investee
activities in addition to the positive
impact.

Shared Views of the WG
It is important:• To understand that the logic model iseffective for identifying outcomes;
the five dimensions by IMP are
effective for comprehensive impact
analysis; and that IRIS+ is effective
for setting impact indicators.
• To properly select one to three
indicators as impact KPIs that are
directly related to the investee’s
corporate value.
• To set the target values of the
impact KPIs so that they correlatewith financial goals.
• To communicate with the investee
prior to investment to determine
whether the data necessary for
analysis is already available or (ifnot) whether it will be possible tocollect them in the investment
process.
• To conduct the IMM by focusing on
the business that is creating impact,with an eye toward the possibility of
having a larger effect if the investee
has a diversified set of projects.

It is advisable:• To consider utilizing a part of the ESG
assessment that the fund managers
are already using in their portfolio for
ESG investments, if any, to assess

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negative social and environmental
impacts.
• To consider measures to avoid
negative impact and, if necessary, towork with investees to take steps toeliminate organizational systems andbusiness processes that could create
negative impact.
STEP 3: Monitoring and Engagement
Key Considerations
Shared Views of the WG
The fund manager executes the
It is advisable:
investment based on the IMM• To have sufficient communication
process designed in Step 2. The
with investees and use technology asfund manager monitors andnecessary in monitoring the progress.
engages throughout theinvestment period.
The fund manager monitors the
progress toward the achievementof financial KPIs and impact KPIs.
The method and depth of
It is important:engagement will vary depending• To properly conduct theon the asset class, fund manager,
engagement with the understanding
and business stage of the investee,that the method and depth ofand should be conductedengagement vary depending on theappropriately in line with the fundasset class, the business stage of the
manager’s impact fund strategy.
investee, and other factors• To consider, in the case of private
equities, hands-on support so that
the IMM process becomes acommon understanding for theinvestee's stakeholders.
• To engage, in the case of public
equities, in a collaborative dialogue
with investees in order to foster
trust and impact generation.
STEP 4: Sell/Exit and Reporting
Key Considerations
Shared Views of the WG
The fund manager makes sell/exit
It is important:decisions to ensure that the impact • To strengthen the IMM process forcreated by the investee isfund managers and investees and tosustained after sell/exit, andwork on regular and robust
reports on impact performance tocommunication in order to makethe end investor.
decisions based on impact, although
When considering the timing,
the number of sells/exits may be still
structure and process of sell/exit,
small across different asset classes.
the fund manager takes into22•account its impact onsustainability as well as fiduciary
responsibilities.
The fund manager compares andverifies the expected and actual,
positive and negative impact, andreports back to the end investor.
The fund manager uses the results
to improve the IMM.

It is important:• To report on the depth of outcomesby utilizing impact indicators andimpact KPIs, avoiding superficial
analyses.
• To implement the PDCA cycle
incorporating the IMM process.
• To contribute to the development of
IMM practice by actively sharing
learning in the investmentcommunity.

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