Impact investing may be poised to go mainstream, thanks to new operating principles aimed at creating a common market standard for investors.
Development of the Operating Principles for Impact Management was led by the International Finance Corp., a member of the World Bank Group, in collaboration with asset managers, asset owners, development banks and other financial institutions involved in impact investing. As the largest global development institution focused on the private sector in emerging markets, IFC delivered more than $23 billion in long-term financing for developing countries in 2018.
The principles' spring debut got a strong boost from 60 early adopters with a collective $350 billion in assets invested for impact, including AXA Investment Managers, BNP Paribas Asset Management, Calvert Impact Capital, Credit Suisse, KKR & Co. Inc., Nuveen and Prudential Financial Inc.
"The principles are a good road map for impact investing. This is something that is needed to move the needle," said Mark B. Grier, vice chairman of Prudential Financial, which by the end of 2018 had more than $1.2 billion in impact investment commitments.
While investor appetite for impact investing is growing, "the field needs some discipline and transparency and rigor," said Mr. Grier, who also serves as board chairman of the Global Impact Investing Network, a nonprofit organization aimed at increasing the scale and effectiveness of impact investing across the globe.
Developers of the principles say investors need assurance that the impact investment market is transparent, credible and disciplined, without the potential for "impact washing" through unsubstantiated claims. To that end, the nine operating principles cover all steps in the investing process, from strategy, origination, structuring and portfolio management to exit and independent verification. The principles stress defining strategic impact investments, monitoring and assessing progress, and improving decisions based on the lessons learned.
The timing is right, said Rekha Unnithan, manager of Nuveen's more than $800 million impact investing portfolio in New York. "We didn't really have until now a framework for what it means to be an impact investor. The need is clear, and it is very important. Every large asset manager and every asset owner is thinking about impact investing. The very critical element of this is scale with integrity," said Ms. Unnithan, who provided feedback during development of the principles.