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Model of Influence

When we invest, we consider two simultaneous objectives:

1. Maximising Risk and return, which includes sustainability-related risks and opportunities

2. Maximising influence and impact, which considers the real-world sustainability impact of our investments

Institutional investors increasingly share this “double-materiality” view and want to incorporate both lenses into their investment process. Yet there is little clarity about what is meant by influence, real-world sustainability impact, and how to measure it. 

Consequently, we have developed our own ‘model of influence’. This comprises of three key forms of influence, based on how direct an impact these actions have. We believe investors should seek to develop their influence across all three tiers when constructing portfolios and maximise their influence to achieve real-world sustainability impact.

Tier one: High impact direct influence

The first tier of influence includes interactions that are most impactful:

  • Supplying new capital, debt or equity to a company or government, where this has an environmental or social objective
  • Collaborative company engagement on sustainability-related topics, for example through the Climate Action 100+ initiative


Engaging with public policymaking to create a more sustainable economy, for example engaging to decarbonise the electricity grid or rollout electric vehicles. Enabling activities or markets that may be new to investors, such as water and sanitation, through new thematic impact strategies. This helps develop an evidence-base that can enable further capital flows into sustainability outcomes

Tier one in practice

A sustainable bond (like a green bond or a social bond) typically raises capital that will be directly used to finance a set of projects that will have a positive environmental or social impact. For example, bonds issued by banks that finance infrastructure in emerging economies, or green bonds that finance new low carbon energy. It is important to monitor the proceeds have been used as intended and having the desired impact.

Private impact investing supplies private capital to entities which will use it for a stated purpose. For example, social housing provision may work together with local authorities and charities to provide accommodation to lower income families or vulnerable groups. These have good credit characteristics and offer good risk-adjusted returns.

With regards to collaborative action, ACTIAM supported Climate Action 100+ on TotalEnergies and leading engagement with the company around biodiversity and human rights risks, voting against TotalEnergies’ “say-on-climate” resolution in 2021 as it was not ambitious enough.

Cardano has been involved in policy engagement by responding to consultations by the DWP on pension fund climate disclosures under TCFD reporting regulations. We also encourage government to step up the commitments to combatting climate change in line with their Paris agreement commitments.

Tier two: Direct single investor influence

The second tier may be less impactful then collaborative engagement, but can still have an important impact when executed skillfully:

  • Engaging with companies and be an active steward (including exercising voting rights) as an individual investor on sustainability-related topics

Tier two in practice

Cardano has expectations on good stewardship that we expect to see from the asset managers we work with. We expect to see clear processes around engagement with management teams on ESG issues, clear setting of engagement objectives and milestones and monitoring of the progress of that engagement.

As an example, ACTIAM is engaging the company Rockwool International A/S about its strategy to achieve water neutrality through its operations and the products and services it offers. In the engagement conversations, ACTIAM encourages Rockwool to consider the regional and local context for its product offering to improve impact on water savings.

Tier three: Indirect influence via cost of capital and signaling

The third tier of influence to achieve real-world sustainability impact is one many institutional investors are already doing but could be doing more effectively and involves:

  • Integrating ESG issues into buying and selling of securities, in particular through incorporating environmental and social-related objectives into mandates as part of a pension scheme’s approach to asset allocation
  • Decreasing the cost of capital for more sustainable businesses (through purchases in the secondary market) creating a competitive advantage for them whilst increasing the cost of capital for less sustainable businesses (through denial of capital or sales in the secondary market). This indirectly influences their cost of capital and their competitive positioning
  • It can be implemented through cash equities and bespoke derivatives – both influence security pricing and cost of capital – This includes for example ESG tilts in indices, exclusion policies such as excluding thermal coal or fossil fuels, and mandates emphasising climate change solutions

Tier three in practice

We are seeing evidence of the impact of indirect influence in sectors like thermal coal where many managers are refusing to purchase and fund new projects: the “cost of capital” to fund new coal projects has gone up substantially as the share prices of these companies have collapsed. This clear signalling by investors also enables governments to take a harder line stance on preventing new coal mines. Another example would be Transition focused investments: Skilful managers may be able to identify transition companies who currently have a poor carbon impact but are likely, based on their forward looking plans to transition to more sustainable activity in the future. Allocating capital will support the cost-of-capital in these businesses while increasing it for companies who are likely to fail to transition by either avoiding (or even shorting) those businesses.

We believe this model of influence, if effectively implemented in investor portfolios, can have a huge impact in tackling climate change, environmental and social challenges. Whilst all three tiers are powerful combined, it is our belief that you have to start somewhere and so you should maximise what you can, where you can as every effort counts.

In context

These tiers of influence are not mutually exclusive. An investment strategy can and should aim to combine different activities in one strategy. In many cases it is the combinations of different tiers that may lead to the effectiveness of a strategy. The model, whilst meant to be normative, may not always work this way;  sometimes tier 3 cost-of-capital influence might be more influential in creating change than say tier 2 engagement, depending on the circumstances.

It is important to note that different investment strategies and different managers will have different capacities to deploy the model. It needs to be used in the context of an investment strategy and its constraints. Both capacity to influence and capability to influence should be considered.

Our approach to implementing the influence model

We apply our model of influence to our investment activities to maximise our real-world sustainability impact, and how to measure it. 

1) Start with our beliefs about sustainable investment

In general, we believe more sustainable businesses are lower risk in the long term, have competitive advantage over less sustainable businesses and investors, in the long term, will not be sacrificing returns to invest sustainably.

2) Set ambitions and targets for both risk-adjusted return and real-world sustainability influence and impact

The best way to maximise risk-adjusted return and influence will differ from one situation to another and both elements need to be considered simultaneously.

3) Be ambitious about creating influence in the portfolio

Aim to create influence across all tiers of the influence model and all components of the portfolio. Asset managers should be appointed on the basis they are capable of exercising influence and good stewardship. If it is not possible to influence directly, we may be able to influence indirectly.

4) Avoid greenwashing

Avoid manipulating statistics to appear sustainable without having a real-world impact.