Sponsored | July 19, 2021

Why impact investors should pay attention to practices, not just performance

Christina Leijonhufvud
Guest Author

Christina Leijonhufvud

Most of us were taught growing up that the ends don’t justify the means. It matters how you go about achieving your goals. The same is true when it comes to impact investing – the process by which investors achieve their results matters as much as the results themselves. Just as an athlete or musician can only master their craft through disciplined practice, an impact investor will be better-positioned to achieve impact results if they have high-quality and rigorous impact management practices. 

The good news is that the impact investing industry is advancing standards for both practices and performance, with recent progress particularly on practice standards. These standards and frameworks – notably including the Operating Principles for Impact Management (Impact Principles), Impact Management Project (IMP) and the SDG Impact Standards – describe how investors can integrate impact considerations throughout the investment process, from goal-setting to due diligence to exit. 

Still, many practitioners are unsatisfied with the focus on process and practice, and believe that impact performance results and outcomes (e.g., carbon emissions reduced, quality jobs created, lives saved or improved, etc) speak for themselves. While it is hard to debate that results matter, the standards for impact performance reporting are still in development. 

Certainly, encouraging progress is underway on this front thanks to the leadership of organizations like the Global Impact Investing Network (GIIN), which recently published its “Compass: Methodology for Comparing and Assessing Impact”, and the IFRS Foundation, which is working on creating an International Sustainability Standards Board (ISSB) to harmonize various sustainability reporting standards, an initiative led by Clara Barby from the IMP.  

However, in the meantime, most investors and companies lack the information needed to effectively compare one firm’s impact performance results to another’s. 

While efforts to establish unifying standards for impact performance measurement and reporting continue, rigorous evaluation of investors’ impact management practices can tell us a great deal about the authenticity of an investor’s stated impact objectives and their chances for achieving those objectives. 

Consider a scenario where two fund managers specializing in real estate both claim to deliver similar levels of impact and financial performance – for example, providing 10,000 affordable housing units to communities in need while earning risk-adjusted returns of 6-8% per annum. An expert, third-party verification of those managers’ impact management practices by a firm like BlueMark would provide insight as to how each manager:

  • Defines and evaluates expected impact for each potential investment property;
  • Tracks and monitors whether the properties are achieving the impact expected; and 
  • Works with property managers to solicit input from community members and other stakeholders in the evaluation of impact and to address instances of impact underperformance;

These are among the kinds of practices that the impact investing community considers proper impact management. Naturally, it’s fair to expect that the manager with the more thoughtful and disciplined approach to impact management would be more likely to realize optimal impact results.

This is why independent verification is an important enabler for allocators to efficiently “look under the hood” of managers’ investment practices to understand how effectively impact considerations are integrated throughout the lifecycle of the investment. A well-designed verification methodology that’s grounded in impact management expertise can be an important due diligence tool for allocators looking to compare the practices (as well as the performance) of various fund managers. 

The standardization of best practices in impact management

The rapid rise of standards like the Impact Principles and SDG Impact Standards shows that impact management practices will remain an important piece of the impact investing puzzle. Already, there is a growing expectation that impact investors be aligned to one or more of these standards, with third-party verification emerging as an important accountability mechanism to assure that investors have the right systems, processes, and capabilities to contribute to achieving the intended impact.

BlueMark’s ‘Making the Mark’ research report, which was based on 30+ verifications of impact management systems, showed significant differences in how investors approach impact investing, with some investors earning top scores on their alignment with the Impact Principles while other investors had significant gaps or shortcomings in their approach. To take our research a step further we created the BlueMark Practice Benchmark, which functions both as a resource for investors to be able to see how they stack up against their peers and as a tool for asset allocators and other market participants to differentiate between Practice Leaders (those in the top quartile) and Practice Learners (those in the bottom quartile).

While impact investors shouldn’t lose sight of the importance of delivering impact performance in line with stated goals, the process by which those outcomes are achieved is just as important. Impact investors should be able to show, for example, that they are contributing to the achievement of reported impact results, engaging with investees to minimize negative consequences, risks, or side-effects, and taking measures to ensure impact is sustained beyond the life of the investment.

One day the impact investing industry may find a way to integrate both practices and results into a comprehensive disclosure and reporting framework. Until that day arrives, it’s imperative that impact investors back up their impact claims by adopting standards for impact management practices in addition to reporting out on their results.


Christina Leijonhufvud is the CEO of BlueMark, where she manages all aspects of business strategy, new product development, and external relations. To date, BlueMark has completed 40+ impact verification assignments across investor types and asset classes.