Amundi, AXA Investment Managers and BNP Paribas Asset Management are among 60 investors that have backed a set of principles intended to provide a clear market standard for impact investing.
The International Finance Corporation (IFC), the emerging markets-focused private sector arm of the World Bank Group, led the development of the ‘Operating Principles for Impact Management’.
The IFC said the principles “bring greater transparency, credibility, and discipline to the impact investing market”, addressing concerns about “impact washing”.
“Impact washing” refers to a perceived inappropriate labelling of investment strategies or products as “impact”. The term has gained currency as impact investing has gained attention in mainstream institutional investment.
The IFC has estimated that appetite for impact investing could be as much as $26trn (€23trn), while the Global Impact Investing Network (GIIN) has sized the market at $502bn.
“Trends in the asset management industry have made it increasingly attractive for managers to use the ‘impact’ brand while marketing their funds to asset owners,” said the IFC.
“Given that until now there have not been standards regarding what it means to manage for impact, asset owners will have difficulty assessing which… funds are truly managed for impact, and which are not.”
The Operating Principles for Impact Management
According to the IFC, the principles were intended to answer demand from asset owners and asset managers for a market standard for impact investing.
They were developed in collaboration with financial institutions with expertise in managing for impact, and the IFC said they built on and complemented the range of existing standards, tools and frameworks in the impact investing and broader responsible investment field.
The IFC also worked with the GIIN and the Impact Management Framework, two influential organisations in the impact investing field, in developing the principles. The GIIN recently set out what it identified as the four “core characteristics of impact investing”, a move that also sought to bring clarity and establish standards for credible impact investing practice.
The principles integrate impact into the key stages of the investment process: strategy, origination and structuring, portfolio management, exit and independent verification.
The IFC stated: “Crucially, 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.”
It added that asset owners adopting the principles would “exert a powerful influence on asset managers to adopt them too”.
BNP Paribas Asset Management said the principles represented “a significant step towards creating a consistent framework for impact investment”.
Adopting the strategies was “another milestone in our commitment to sustainability, and in particular impact measurement”, it added.
MicroVest, a specialist impact fund manager and another early signatory, said the principles were “an extremely important initiative”.
Actis, an asset manager that was spun out of UK development finance institution CDC, recently developed an impact measurement framework. It said today that it had put this into the public domain, with real examples of its application.
“Unverified, opaque and incompatible industry approaches to measurement must be replaced if impact investing is to achieve its potential,” said Shami Nissan, head of responsible investing at Actis. “Effective measurement and verification will expose ‘impact washing’ – a significant threat to investor trust.”
Actis is a founding signatory of the new principles.
IPE will publish a special report on impact investing in May