ABOUT 60 investors including International Finance Corporation (IFC), Actis AXA Investment Managers have agreed to adopt the Operating Principles for Impact Management, a market standard for impact investing, IFC Chief Executive Officer, Philippe Le Houérou, said at the weekend.
IFC in a statement circulated in Washington DC at the ongoing World Bank/International Monetary Fund (IMF) Spring Meetings, Le Houérou said under the Impact Operating Principles, operators seek to generate positive impact for society alongside financial returns in a disciplined and transparent way, saying the principles bring greater transparency, credibility and discipline to the impact investing market.
He said the organisations adopting the principles collectively hold over $350 billion in assets invested for impact, which they commit to manage in accordance with the Principles, adding that future investments for impact will also adhere to the principles.
He said the principles provide a clear common market standard for what constitutes an impact investment, addressing concerns about “impact-washing,” stating that the IFC led the development of the Principles, in collaboration with leading asset managers, asset owners, asset allocators, development banks, and financial institutions, including a three-month public stakeholder consultation.
“We believe there is now potential to bring impact investing into the mainstream,” Le Houérou said, adding, “our ambitions are very high – we want much more money managed for impact because there’s no time to lose to deliver on the billions to trillions agenda.”
In a new report, titled: Creating Impact: The Promise of Impact Investing, the IFC estimates that investor appetite for impact investment could be as much as $26 trillion, including $5 trillion in private markets involving private equity, non-sovereign debt, and venture capital, and as much as $21 trillion in publicly traded stocks and bonds.
He said to fulfill this potential, impact investing needs to offer investors a transparent basis on which they can invest their money to achieve positive measurable outcomes for society in addition to financial returns, saying the Principles launched “facilitate this process by creating clarity and consistency regarding what constitutes investments managed for impact to bolster confidence in the market.”
IFC, an affiliate of the World Bank Group, is one of the oldest and the largest impact investors, demonstrating that it is possible to achieve significant development impact while generating solid financial returns.
On average, IFC’s realised equity returns from 1988 to 2016 compared well to returns from the MSCI Emerging Market Index.
The Principles draw on IFC’s experience in investing in emerging markets to achieve strong development impact and financial returns. They reflect best practices across a range of public and private institutions. They integrate impact considerations into all phases of the investment lifecycle: strategy, origination and structuring, portfolio management, exit, and independent verification. Critically, they call for annual disclosure as to how signatories implement the Principles, and independent verification of impact management systems, which will provide credibility to the implementation of the Principles.