International Finance Corporation launches draft impact investment operating principles for consultation
Investors are increasingly incorporating impact investments – investments with the intent to contribute to measurable positive social, economic, or environment impact – into their portfolios. Despite this increased interest, to date there has been no common discipline for how to manage investments for impact and the systems needed to support this.
To address this challenge, IFC is developing the Investing for Impact: Operating Principles for Impact Management, with the objective of establishing a market consensus around the management of investments for impact and to help shape and develop this nascent market. IFC is inviting additional reviews from stakeholders – investors, companies, academics, civil society and governments – through the end of December 2018 after which the Principles will be available for investors to sign.
The following organizations and individuals participated in the development of the Principles: Actis, Avanz Capital, Bridges Fund Management, CDC Group, Credit Suisse Group AG, European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank Group, Investisseurs & Partenaires-I&P, LeapFrog Investments, Nuveen, a TIAA company, Overseas Private Investment Corporation (OPIC), Partners Group, RockCreek, Société Générale, The Rise Fund, and Simon Smiles and James Purcell (UBS). The following organizations and individuals were consulted during the development of the draft principles: Global Wealth Investment Management, Bank of America, Damian Payiatakis (Barclays), and FMO.
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The Principles describe the essential features of managing investment funds with the intent to contribute to measurable positive social, economic, or environmental impact,10 alongside financial returns. This goes beyond asset selection that aligns investment portfolios with impact goals (for example, the SDGs), to requiring a robust investment thesis of how the investment contributes to the achievement of impact... The Principles have been designed from the perspective of an end-to-end process. The fve elements of this process are: strategy, origination and structuring, portfolio management, exit, and independent verifcation. The nine Principles that fall under these fve main elements are the key building blocks for a robust impact management system. As such, they aim to ensure that impact considerations are integrated into investment decisions throughout the investment lifecycle... The Principles were developed by the International Finance Corporation (IFC), drawing on its own impact management practices, and consulting with a range of asset owners, asset managers, asset allocators, multilateral development banks (MDBs), and development fnance institutions (DFIs).
The IFC Operating Principles for Impact Management (the Principles) have been developed by a group of asset owners, managers, and allocators to describe essential features of managing investment funds with the intent to contribute to measurable positive social, economic, or environmental impact, alongside financial returns… Impact investments have the potential to make a significant contribution to important outcomes by addressing challenges related to, for example, economic inequality, access to clean water and sanitation, agriculture productivity, and natural resource conservation... The Principles have been formulated based on two fundamental concepts: (1) core elements of a robust impact management system; and (2) transparency of signatories’ level of alignment with the Principles... [Principles include:]
- Define strategic impact objective(s), consistent with the investment strategy...
- Establish the investor’s contribution to the achievement of impact... [and]
- Assess, address, monitor, and manage the potential negative effects of each investment... [among others]