The world’s largest pension funds, insurers, family offices and sovereign wealth funds are waking wake up to financial opportunity in impact investing, says Andy Kuper, CEO of the $1 billion LeapFrog Investments. “But they also want to know that they’re not going to wake up with their name in the paper for something that apparently is impact but actually turns out to be extractive and exploitative.”
Kuper was in Bali last week with representatives from UBS, Partners Group and others at the annual meetings of the World Bank and International Monetary Fund for the launch of the International Finance Corp.’s “operating principles for impact management.” A basic set of impact standards, alongside demonstrable outsized returns, could produce the paradigm shift that helps attract trillions in capital to impact investing, he says. “In the financial markets, demonstration is more powerful than remonstration.”
The IFC, part of the World Bank Group, is betting on the nine principles to help combat “impact washing” while providing an impact-investing onramp for institutional investors sitting on trillions. The IFC’s impact principles include “establish the investor’s contribution to the achievement of impact” and “conduct exits, considering the effect on sustained impact.” The nine principles track to the lifecycle of managing an investment fund, including strategic intent, structuring, portfolio management, exit and verification. The final principles and first signatories are expected in April.
- Mobilization. The IFC is the latest industry group to attempt to put basic standards around impact investing practice (see this and this and this). In Bali, Jim Kim said the World Bank aims to use the multilateral development system “to give real teeth and perhaps broader acceptance” to impact investing best-practices. “If we just mobilized all the private sector money under the control of people who already talk about impact investing,” he said, “we could transform the world.”
- Proof points. Kuper founded LeapFrog a decade ago to reach millions of lower-income emerging consumers with healthcare and financial tools. The frontier market private equity firm has realized exits through acquisitions by Swiss Re, Prudential and other major institutions. LeapFrog’s portfolio companies now serve more than 117 million people living on less than $10 a day and have grown revenues on average 40% annually over the decade. Kuper provided input to the IFC’s principles. “With the principles in place, and some of the returns being demonstrated,” he said, the field has the opportunity “to scale this to the trillions.”