By Neil Gregory
The fall is peak season for impact investing conferences. Events like Social Capital Markets, UN PRI in Person, GIIN Investor Forum, and the Global Steering Group for Impact Investing Summit bring together important slices of the global industry. I attended most of the events this year as part of our efforts to encourage impact investors to adopt a common set of Operating Principles for Impact Management.
I also took the opportunity to meet with groups of institutional investors, asset managers, and others in half a dozen countries with a growing interest in investing for impact. We now have nearly 80 signatories, with many more in the pipeline, and I’ve had many interesting meetings and conversations with the signatories and potential signatories.
My travels this fall has given me a good sense of where impact investing is headed globally. I am seeing more interest from larger pools of capital — pension funds, insurance companies, and foundations — to invest for impact.
I also see some straws in the wind for how the industry needs to continue to mature as it grows.
First, independent verification is an idea whose time has come. Self-declared impacts are no longer enough. We included in the Principles a requirement for independent verification of impact management systems. This has sparked a lot of activity as Signatories and consulting firms develop approaches to deliver this service. I thought our panel discussion on independent verification at SOCAP in San Francisco would be a nerdy side show, but it attracted an overflow audience. Beyond that, I foresee increasing demand for independent verification of the impact metrics reported to investors. Audit is too strong a word, because many impacts cannot be measured with auditable metrics, and only materialize over time. But investors are demanding more independent quality assurance of the impact reporting they receive.
Second, more stakeholders are calling for beneficiaries to be involved in the assessment of impact. We are used to consulting beneficiaries on potential negative impacts of our investments — the Equator Principles and other ESG standards have required that for years — but few of us have thought about consulting beneficiaries on the positive benefits we seek to achieve. Some impact investors are showing the way: Acumen has developed a method to survey beneficiaries on their cellphones (www.60decibels.com).
Third, asset owners are calling for common impact metrics, so that they can compare impact performance across portfolios of investments in impact funds and vehicles. Already, the Signatories to the Operating Principles have begun work on identifying common metrics for gender and climate impacts, building on widely used platforms like IRIS+ (www.iris.giin.org) and HIPSO (www.indicators/ifipartnership.org).
Fourth, fund manager incentives will receive increasing attention. The next time you hear a fund manager talk about the impact goals of their fund, ask them how much of their compensation is linked to achieving those goals. Most are still rewarded on financial performance, but the more innovative funds are starting to reward impact achievement. The Operating Principles call on Signatories to consider alignment of incentives. I expect the calls to embed that alignment in compensation packages to grow louder.
So while I return from my travels with the sense that the industry is poised for rapid growth, I also see there is much to do in the coming year to ensure it continues to grow with credibility.
Neil Gregory is the Chief Thought Leadership Officer of the International Finance Corporation.
