There is stark disagreement among managers when it comes to whether energy transition investments should be considered inherently impactful, as evidenced by a discussion on day two of the Infrastructure Investor Network Global Summit in Berlin this week.

In a panel discussing the rise of impact and transition investing, Luxcara managing partner Alexandra von Bernstorff challenged other panellists to be clearer about what impact investing meant to them. Luxcara launched in 2009 and is a European asset manager focused on renewables. It closed Fund V, which was classified as Article 9 under SFDR, on €1.5 billion in 2023 according to the New Private Markets database.

von Bernstorff said: “Listening to all of you – and I like the ideas – but this is not a common ground. I don’t think that anyone in the audience has a concept now of what impact means for any of us, and I think that is a problem.

“We need to define what is impact and it needs to be simple and clearly comparable because otherwise everyone has his own definition and this doesn’t help investors, it doesn’t help society in general… That’s why I’m personally a big fan of the European taxonomy and Article 9 [of the] SFDR because it does give transparency and it gives a measurement and it has a clear definition.”

Despite impact investing attracting more attention from mainstream investors, the term is still not used consistently across the market. In the US the word itself can carry connotations of below-market-rate returns, causing some managers to become “impact whisperers” as they downplay the impact element of their strategies in a bid to avoid getting pulled into the debate.

Fellow panellist Scott Jacobs, CEO and co-founder of Generate Capital, had a different perspective. Headquartered in San Francisco, Generate is an investment company that develops climate projects by deploying permanent capital, straddling debt and equity financing and operations. The company has deployed $2 billion in assets related to clean energy generation; it also participates in projects involving energy efficiency upgrades for buildings and transportation. CalSTRS, Hesta, QIC and AustralianSuper backed its latest $1.5 billion funding round.

Jacobs said: “We don’t tend to describe ourselves as impact investors. At least in the US, impact connotes concession. It connotes that you’re trading financial returns for some form of social or environmental impact. We don’t believe that’s necessary and we have a 10 year track record proving that. We have among the best returns you could find anywhere in the infrastructure space, anywhere in energy… But we are 100 percent focused on the energy transition, which we would say is impact.”

In response, von Bernstorff said: “Doing energy transition investments is not impact by itself. That’s like two different things. You can do it in an impactful way or not an impactful way. And this is why we have European taxonomy in SFDR.”

Jacobs invited the audience to “understand what we actually do and you can define it however you want with one word. I don’t care what that word is”. He told the story of the firm’s financing of a project for Hillsborough County Public School district in Florida, which brought down energy costs by increasing efficiency and integrating renewable energy.

“I’ve called that impact. I also would call that a 20 percent IRR over 25 years for the single A-rated creditworthy counterpart. What’s wrong with that picture? Pick your word. I don’t care what the word is. Pick your taxonomy. I don’t care what that is either. What I care about is delivering results,” he said.

In von Bernstorff’s view, more is needed to qualify as impact. She said: “I still have a problem calling something impact without KPIs because then everyone can call it impact. And this is my problem, Scott, with what you say: I completely appreciate your great returns, but you need proper KPIs,” she said.

Jacobs said that, while Generate Capital will “put whatever KPI out there anyone needs”, cherry picking a single set of metrics can be “pretty reductionist”.

He added: “My call is to even greater transparency and even more KPIs and those that actually represent what the business is. But the other call is to make sure that every single investor uses the same type of disclosures and be forced to be as transparent as we are.” Without this measure Generate would incur costs that other investors might not have to report on, he continued, “and by definition, that means we have higher costs and by definition, that means we have lower returns, and by definition, that means we’re in the concessionary category, and by definition, that means we’re in the niche of charity.”

Other panellists did not explicitly come down on either side of the debate, though some did question von Bernstorff’s faith in the European regulations.

“There’s confusion in the EU taxonomy that causes people to be cautious,” said Minesh Mashru, head of infrastructure at Cambridge Associates. “A lot of people who are having transition strategies are doing an Article 8, which sends the wrong message about what they’re trying to do because actually they’re worried about changes in taxonomy that are happening at the moment.”

The challenges of complying with Article 9 of the European regulations have caused many managers to steer clear of the category for their transition funds, though some, such as Eurazeo, have made the commitment.