Relevance of Operating Principles for Impact Management -

On April 12, 2019, history was made when the Operating Principles for Impact Management were officially launched at the World Bank Group-IMF Spring Meetings in the United States’ capital, Washington District of Columbia. Earlier in February this year, the International Finance Corporation (IFC) published a comprehensive report on what the principles entail.

The publication of the impact investing operating principles followed the growing importance of impact investing globally. There are noticeable gains since the launch of the principles as no less than seventy-one (71) companies have become signatories, albeit with little African presence. The few impact investors with focus on Africa that are signatories to the principles are the Development Partners International LLP and the Egyptian-American Enterprise Fund.

“The impact investing market is currently estimated at $502 billion, and is growing at a rapid pace as socially-minded investors; family offices, investment funds and other companies recognize the power of this approach. It is growing in sectors such as energy, banking, education, housing and infrastructure, with returns those rival non-impact investment portfolios.

“Naturally, as the market grows, significant players from banking, insurance and healthcare – including MSD – and other industries are joining in, fuelling a cycle of more growth and better expertise in the sectors invested in”, the World Economic Forum, stated.

According to the IFC, there are five major broad aspects of these principles, which are further divided into nine subdivisions.

“Investors are increasingly looking to invest with impact, with a growing number of investors adopting the Sustainable Development Goals (SDGs) as a reference point to illustrate the relationship between their investments and impact goals. Despite the growth in the impact investing market in recent years, the lack of a common standard for what constitutes impact created confusion for investors. In response, IFC led the initiative to create a framework for impact investing – one that is focused on ensuring that impact considerations are purposefully integrated throughout the investment lifecycle”, the IFC said.

The first principle is the strategic intent. Two objectives are to be realised here which are the impact investor must define its strategic impact objectives which must be consistent with the investment strategy; and that the strategic impact must be managed on portfolio basis. In this case, the impact investor is expected to define strategic objectives for the portfolio or fund with a view to achieving positive and measurable social or environmental effects in line with Sustainable Development Goals (SDGs).

The second principle is origination and structuring and is very essential because there must be a record of the impact manger’s contribution to the achievement of impact, and the expected impact of each investment, based on systematic approach must be assessed. The essence of this to establish and monitor impact performance for the entire portfolio considering the fact that impact could vary from individual investments in the portfolio.

The third principle is portfolio management which entails monitoring the progress of each investment in achieving impact against expectations and that response should be appropriate. This implies that contributions could be through one or more financial or non-financial channels. This encompasses improving the cost of capital, shareholder engagement, offering innovative financial instruments and creating long term trusted partnerships, among others.

Assessing the expected impact of each investment using a systematic approach is crucial. A systematic approach is the application of clearly defined and repeated methods learned through a step by step procedure. A number of questions are raised here. What is the intended impact? Who experiences the intended impact? How significant is the intended impact? It is advisable that the impact assessment is evidence-based to identify the size of the challenge to be addressed within the targeted geographical context.

The principles also seek to monitor and manage the potential negative impacts of each investment. This is essential to mitigate and manage environmental, social and governance risks.

Other subdivisions of these principles include to monitor the progress of each investment in achieving impact against expectations; conduct exits considering the effect on sustained impact; improve decisions and processes based on the achievement of impact and lessons learned, and that the impact investors should publicly disclose alignment with the principles and must be ready for independent verification of this alignment. The verification is to come upon an annual basis or at regular interval and the conclusions of the verification, report will be publicly disclosed.

Signatories to Operating Principles for Impact Management

Actis
Acumen Capital Partners
Albright Capital Management LLC
AlphaMundi Group
Amundi
AXA Investment Managers
Belgian Investment Company for Developing Countries (BIO)
Blue like an Orange Sustainable Capital
BlueOrchard Finance
BNP Paribas Asset Management
Calvert Impact Capital
Capria Ventures
Cardano Development (ILX Fund and TCX)
CDC Group
CDP – Cassa Depositi e Prestiti
Christian Super
COFIDES
Community Investment Management (CIM)
Cordiant Capital
Credit Suisse
DEG – Deutsche Entwicklungsund Investitionsgesellschaft mbH
Denham International Power GPLP SCSp
Development Bank of Latin America (CAF)
Development Partners International LLP
Egyptian-American Enterprise Fund
European Bank for Reconstruction and Development (EBRD)
European Development Finance Institutions (EDFI)
European Investment Bank (EIB)
Finance in Motion
FinDev Canada
Finnfund
Flat World Partners
FMO – the Netherlands Development Finance Company
FullCycle
IDB Invest, Member of the Inter-American Development Bank Group
IFC
IFC Asset Management Company (AMC)
IFU – Investment Fund for Developing Countries
Incofin Investment Management
INOKS Capital SA
Investing for Development SICAV
Investisseurs & Partenaires – I&P
Islamic Corporation for the Development of the Private Sector (ICD, Member of IsDB Group)
Japan International Cooperation Agency
Kohlberg Kravis Roberts & Co.
LeapFrog Investments
LGT Impact Investment Advisors UK
LGT Venture Philanthropy Foundation
MicroVest Capital Management
Norfund
Neuberger Berman
Nuveen, a TIAA Company
Obviam
Oesterreichische Entwicklungsbank AG (OeEB)
Origin Capital
Overseas Private Investment Corporation (OPIC)
Partners Group
Phatisa Group Limited
Proparco
Prudential Financial, Inc., Impact Investments Group
The Private Infrastructure Development Group Ltd. (PIDG)
responsAbility Investments
Sarona Asset Management Inc.
STOA Infra & Energy
Swedfund
Swiss Investment Fund for Emerging Markets (SIFEM)
Symbiotics S.A.
The Osiris Group
The Rise Fund
The Rock Creek Group
Triple Jump
UBS Group
UOB Venture Management Private Limited
VentureWave Capital Ltd.
org
WaterEquity
Zurich Insurance Group