IFC: Impact Investing Market ‘Growing and Maturing’

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Jun 2020
Global, June, 09 2020 - The impact investing market is “growing and maturing”, the International Finance Corporation (IFC) has said on the basis of a new report it has compiled about the type of investment.

Entitled ‘Growing Impact’, the report is a follow-up to ‘Creating Impact’, the IFC’s first assessment of the global market for impact investing and investor practices.

Published in April 2019, that report also served as the background to the IFC launching the Operating Principles for Impact Management.

In its new report, the IFC, the private sector arm of the World Bank Group, estimated the size of the impact investing market could be up to $2.1trn (€1.83bn).

This is the upper end of the range of assets under management in private markets that meet the IFC’s definition of impact investing, capturing those assets managed “with intent for impact”.

Roughly a quarter of that – $505bn – has been identified by the IFC as being measured for impact.

In public markets, the IFC said, “it is more difficult to credibly invest for impact”.

However, it suggested that half of green, social and sustainability bonds and 10% of “shareholder action strategies” could qualify as impact investments, representing some $1.4trn.

“We may, therefore, conjecture that in 2019 between $505bn and $3.5trn in assets were invested for impact through a wide range of funds, assets, and institutions,” said the IFC.

Whatever figure in that range one opts for, the IFC’s analysis indicates that the market is falling far short of meeting demand. In last year’s report the IFC estimated that appetite for impact investing could be as much as $26trn.

‘Maturing’

According to the IFC, 97 institutions have now signed up to the Operating Principles for Impact Management, up from 58 when they were launched last year. BlackRock is a newcomer, for example.

In its report, the IFC said it showed that impact investors “are developing into a practitioner knowledge community that is self-organised by active investors”.

“The group of committed impact investors that have signed the Operating Principles has naturally coalesced into a community of practice, having regular discussions and workshops on detailed implementation issues,” it said.

“There is an encouraging openness among these investors to share information and experiences, which allows signatories to agree on best practices. Signatories are showing that they want to compete on the best impact and financial performance, not on the best impact management process or data standard.”

In a press release, the IFC said the signatories’ work over the past six months “has aligned more than 90 percent of the indicators in the leading measurement frameworks, a key step towards expanding the industry”.

In response to a question from IPE, Neil Gregory, IFC’s chief thought leadership officer, said that, at the request of the signatories, work had taken place to align the impact indicator sets that most signatories use: Harmonised Indicators for Private Sector Operations (HIPSO) for development finance institutions, and IRIS+, managed by the Global Impact Investing Network.

“This work is nearly complete, and will be reflected in future versions of HIPSO and IRIS+,” said Gregory. “We expect to share more information on this work when it is completed later in the summer.”

Signatories to the Operating Principles must annually disclose the alignment of their impact management systems with the principles and pursue regular independent verification.

Tideline, an impact investing consulting firm, recently published a report based on 13 verifications it has carried out for signatories, and said that those in its sample ”generally excel at articulating their impact intentions and have made significant strides to operationalise those intentions across their investment portfolio”.

They had work to do, however, with regard to establising robust evidence (principle 3), monitoring unintended imapcts and holding investees accountable for ESG or impact underperformance (principles 5 and 6), and “particularly struggle to consider the effects of their exits on the sustainability of impact” (principle 7).



Source : IPE
 

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