WASHINGTON — Sixty investors, who collectively manage more than $350 billion in assets, signed on to a new set of principles intended to bring greater transparency, credibility, and discipline to the impact investing market — agreeing also to have their impact management systems independently verified.
The investors publicly adopted the nine principles, put together by the International Finance Corporation in consultation with experts, civil society groups, and financiers, on Friday during the World Bank Spring Meetings.
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Speaking at the launch event, IFC CEO Philippe Le Houérou said the principles will help create a “common market standard” for impact investing, designed to entice the world’s growing number of socially minded investors to align their financing with the Sustainable Development Goals, while also ensuring their investments truly deliver impact.
“We are seeing a lot of new impact funds coming up,” he told Devex ahead of the launch. “There is a new generation … [who] want the [financial] returns, but also want to feel that the money is being used for good.”
“But impact can mean many things, so we said, ‘let’s have principles to make sure that we all abide by certain rules of the game,’” he added.
Getting this right has the potential to crowd in trillions of much-needed dollars to achieve the SDGs, in line with the bank’s “billions to trillions” strategy. IFC estimates the impact market could be worth as much as $26 trillion.
However, experts have recently expressed doubts over the private sector’s ability, and appetite, to close the SDG funding gap. There are also concerns about IFC’s own accountability record and its ability to deliver impact for communities, especially in fragile and conflict settings.
Early adopters of the principles include the European Investment Bank, European Bank for Reconstruction and Development, IDB Invest, Overseas Private Investment Corporation, and CDC Group, as well as major private investors such as UBS and Credit Suisse. Le Houérou said he expected more investors to sign up in the coming months.
The voluntary principles, which were developed over the past 18 months, aim to guide investors toward building impact into their investments at all stages of the investment lifecycle, including monitoring and reporting. However, they stop short of dictating which impacts should be targeted or how they should be measured and reported.
Signatories agree to disclose how they are implementing the principles on an annual basis and also agree to open their impact management systems to independent verification, which Le Houérou said was a significant step.
“The principles are mostly about process: What is your intent? What is your investment strategy to deliver on that? … What are the processes to ensure it is implemented? How do you measure it, and how transparent you are? … Because otherwise it’s just [saying] ‘trust me,’” he said.
Investors described the principles as a positive starting point.
“We have to start somewhere, and the IFC is in a good place to lead that. But we should not fool ourselves that we have done it. This is just the start,” Bertrand Badré, CEO of Blue like an Orange Sustainable Capital, one of the first signatories, told Devex. “We have the basics and we need to build on that and move decisively, bearing in mind that time is of the essence”
“We’re pleased to join other signatories of these Principles to create common high standards for impact investors and attract the capital that is urgently needed to address global development challenges,” EBRD President Suma Chakrabarti said in a press release.
Civil society groups that focus on strengthening accountability within international financial institutions said they welcomed the principles, but called for a stronger emphasis on accountability.
“We commend impact investors for desiring to do good with their investments. However, without a commitment to the principles of transparency, accountability, consultation, and harm avoidance and remediation, the impact investing field risks harming the very people on the ground that it seeks to benefit and undermining the positive outcomes that investors wish to achieve,” according to a joint statement signed by 25 groups and sent to the IFC in December.
Some investors and onlookers have questioned whether IFC is the best institution to lead the project, but Le Houérou defended IFC’s leadership role, describing the institution as the “mother of all impact investors” through its mandate to do deals in emerging markets.
IFC also has experience developing principles and convening investors, including establishing the Equator Principles 16 years ago, the CEO said. The principles require participating banks to apply a minimum of standards to reduce environmental and social risks in their project finance operations.