Positive Impact Assessment

Integration of positive impact in corporate valuation poses significant challenges. For standardized indicators with established market prices, such as greenhouse gas emissions, direct quantitative adjustments to cash flow can be made (and we do so). However, most impact outcomes lack standardization, making monetary valuation complex and challenging.

The key innovation in our approach lies exactly in how we standardize positive impact in a qualitative and forward-looking manner. We connect a company’s intention to generate high quality positive impact with its length of the future growth period.

More specifically, we integrate impact into corporate valuation by evaluating two key aspects: the company’s impact management framework and the quality of its impact outcomes. This enables consistent evaluation across companies and sectors with diverse impact characteristics. When impact is confirmed, we score it using our proprietary methodology and incorporate the results into our cash flow forecasts, offering a more practical and forward-looking perspective of corporate value creation.

IMM Methodology for Listed Equity Investment

Our qualitative assessment of positive impact starts with developing IMM methodologies tailored to listed equity investments. Unlike accounting standards, IMM does not have a unified framework. Moreover, many existing methodologies were originally created for policymaking or nonprofit evaluations, so they require adaptation to be effective in assessing investment activities.

For instance, an investment strategy that applies a high “additionality” threshold may find relatively few opportunities in listed equities. This is because a defining feature of listed companies is that their core businesses—the main drivers of revenue—are not always seen as providing additionality. Even when certain business segments do qualify, they typically represent only a small share of total revenue.

We take a flexible approach to assessing “additionality” in core businesses. For example, essential services such as water, energy, and telecommunications may not appear highly additional, yet their uninterrupted provision is critical. Even brief disruptions can cause significant harm, which means companies that ensure the stability and reliability of such infrastructure deliver substantial positive impact to society.

Beyond core businesses, we also conduct in-depth analysis of activities that play a crucial role in addressing social challenges, even if their revenue ratio is low. Sumitomo Forestry Co., Ltd. (1911.)is one such company. It derives approximately 50% of its revenue from its international housing business, addressing the issue of housing shortages. However, it also operates a forest management business that contributes to environmental conservation. Although this business accounts for less than 2% of total revenue, its significance extends beyond its revenue contribution, as it supports the sustainability of the housing business supply chain. For such social impact-driven activities, we place particular emphasis on additionality when evaluating their importance.

At Cadira, we assess the revenue ratio of impact-related businesses within its portfolio companies. This ratio serves as an indicator of how integral the impact-related business is within the company. The methodology for identifying businesses included in this calculation is based on our solution classification framework and their contribution to the SDGs. To enhance accuracy, we reference external data and AI-driven industry-solution mapping. We do not currently set a revenue threshold for investment decisions, but we continuously considering clearer standards. We also aim to refine our revenue identification processes.

Impact KPI

We record and manage impact-related KPIs during due diligence. The table below presents a selection of portfolio company's impact KPIs in a clear, accessible format.

Unlike financial data, impact KPIs are not standardized, and disclosure varies by company. We first identify relevant data from publicly available corporate disclosures. If key data points are not explicitly stated, we collect information through direct inquiries or estimations.

Impact data is categorized into outputs (actions taken) and outcomes (results achieved). While outcome-based data is preferred for measuring impact, many companies do not disclose it due to measurement challenges. In such cases, we track output data that can reasonably indicate impact. Ideally, both targets and actual performance should be disclosed, but some companies only report one. When disclosures are incomplete, we engage with companies to encourage transparency.

Impact KPIs are essential for assessing enterprise contributions to environmental and social issues but are not easily comparable due to variations in definitions. Careful scrutiny is needed when aggregating data. Additionally, investment decisions should not be overly influenced by data availability. We must ensure we do not lose sight of critical challenges and financial returns.