Stockholm (NordSIP) – The International Finance Corporation (IFC) unveiled the Operating Principles for Impact Management on Friday, April 12th. The initiative was supported by 60 asset managers and investors from the public and the private sector, including Denmark’s IFU, SwedFund, Norfund, FinnFund, DEG, FMO, BIO, OeEB and Proparco.
“The IFC estimates that investor appetite for impact investment could today be as much as US$5 trillion in private markets—private debt, equity, and venture capital—and as much as US$21 trillion in public markets, according to the recently launched report Creating Impact—The Promise of Impact Investing,” according to the announcement.
The initiative establishes a common framework and market consensus around the management of impact investments that can generate a measurable positive impact on society, while also generating positive returns for the investor.
The framework consists of 9 operating principles for impact management distributed across five stages of the investment process. At the first investment stage, signatories commit to defining a clear strategic intent, with (1) strategic impact objective(s) consistent with the investment strategy by (2) managing strategic impact and financial returns at the portfolio level. With regards to origination and structuring, members will (3) establish their contribution to the achievement of impact clearly and (4) assess the expected impact of each investment, based on a systematic approach. From the perspective of portfolio management, signatories will (5) assess, address, monitor and manage the potential risks of negative effects of each investment. They will also (6) monitor the progress of each investment in achieving impact against expectations and respond appropriately. With regards to impact and exit, asset managers and investors will (7) conduct exits, considering the effect on sustained impact. They also commit to (8) reviewing, documenting and improving decisions and processes based on the achievement of impact and lessons learned. Finally, signatories of the principles will (9) publicly disclose alignment with the Principles and provide regular independent verification of the extent of alignment.
The hope is that these principles will assist the financial industry’s to fulfil its role in the pursuit of the UN SDGs as US$ 30 trillion in wealth is transferred from the baby boomer generation to more sustainably minded generations in next three decades. “This is important because development needs around the world carry a significant price tag. The shortfall in investments needed to meet the UN’s Sustainable Development Goals, for instance, is about US$2.5 trillion per year,” according to the IFC.
“The 60 asset managers and institutions that adopted the impact investing principles today collectively hold over US$300 billion in assets invested for impact. These founding institutions have committed that their current — and future — impact investments will comply. This is a major first step. Other asset managers, asset owners, asset allocators, development banks, and financial institutions are welcome to join us to create a powerful market. We need an impact investing market in the trillions of dollars that gives profits to investors, helps protect the environment, creates good jobs, and creates a better world for everyone,” says Philippe Le Houérou, CEO of the IFC.
The Nordic development funds embraced the initiative. “I believe that creating operating principles for impact management can help investors in finding better investments as well as attracting additional capital, which is surely needed.” Torben Huss, CEO of Denmark’s IFU. From Sweden, Maria Håkansson, CEO of Swedfund also endorsed the initiative saying “we are looking forward to work together with IFC and the signatories of the impact principles to accelerate Agenda 2030.” In Norway, “Norfund appreciates the growing investor interest for impact investments. We believe that the new Operating Principles for Impact Management will be an important tool for all of us who want to make a real difference through our investments,” says Tellef Thorleifsson, CEO of Norfund. “Sustainable investments to counter climate change, youth unemployment, deforestation and other global challenges cannot wait. Time is running out. Development finance institutions can be the game-changers who catalyse maximal investments with maximal impact,” commented Jaakko Kangasniemi, Managing Director at Finnfund.
Picture © IFC