ImpactAlpha, Apr. 30 – The first annual assessments of impact investors are coming in under the International Finance Corporation’s Operating Principles for Impact Management.
While the assessments revealed shortcomings in impact oversight, particularly around investment exits, observers applauded the transparency as an important step in the evolution of the market.
“We believe the principles represent not just best practice for impact management, but over time will evolve to fit into best practice investment management writ large,” said Tideline’s Christina Leijonhufvud on Agents of Impact Call No. 15: Making the mark in impact management.
Tideline, which sponsored the call, analyzed more than a dozen verifications of investors’ alignment with the operating principles in “Making the Mark,” including Nuveen, LeapFrog Investments and the European Bank for Reconstruction and Development.
More than 90 firms have now signed on to the principles.
Almost 500 people “Zoomed” into The Call last week. The topic was impact management and verification, but the agenda was ‘the end of impact-washing.’
The principals, which require signatories to establish and disclose their processes to manage their impact investments, “are addressing the very common and heightened concern around impact washing,” said Leijonhufvud. If the global pandemic has increase interest in impact investing, the principles are one way to help investors distinguish between “impact” funds and… everything else.
Alan Russo of the European Bank for Reconstruction and Development broke some news on The Call when he announced the approval of the bank’s COVID-19 Crisis Response package, a two-year €21 billion euros “solidarity package.” The package includes a €4 billion quick dispersing facility for EBRD clients in desperate need of working capital, said Russo.
“What we find in crises generally is that impact investors tend to lean in and find ways to help,” Russo. “This crisis is no different.”
Russo said the development bank received an “advanced” rating from Tideline on six of the eight principles and has no plan to drop its standards, including adherence to the operating principles, in dispersing the crisis response capital.
The verification process has been a learning opportunity for many firms. Roshni Bandesha of Leapfrog Investments said the process was an opportunity to identify not only weaknesses but what makes the fund manager unique. Leapfrog’s impact management system, says Bandesha, is working to help the firm think about investments “from cradle to grave.”
Maria Teresa Zappia of Blue Orchard said documenting the firm’s impact management processes and completing the verification process helped her team make the case to management for why changes to the process needed to be made. “Had we done this a few months ago probably people would have pushed back, and said, no, why?”
Large financial institutions like ERBD, and more experienced asset managers like Leapfrog and Blue Orchard, seem to be handling adoption of the principles well. How are the principles working for smaller and easier stage fund managers, the audience wanted to know.
“The principles were drafted to be as inclusive as possible,” said Diane Damskey, who leads the IFC team that developed the standards. The IFC drafted principle number nine, for example, the principle that requires verification and disclosure, to allow the audit to be done internally, as long as the audit body was separate from operations.
Damskey said some smaller signatories are forming committees of their LPs to analyze their funds.