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Date: 2024-05-24 Page is: DBtxt003.php txt00016554

Impact Investing
Principles

World Bank arm launches ‘impact investment’ standards ... Nine principles will bring greater transparency, comparability and rigour to $500bn market

Burgess COMMENTARY

Peter Burgess
World Bank arm launches ‘impact investment’ standards Nine principles will bring greater transparency, comparability and rigour to $500bn market

Actis has 850MW of installed generating capacity at this wind farm in India (Actis)

A coalition of 60 asset managers and institutional investors has signed up to new standards designed to accelerate the growth of so-called “impact” investments that aim to deliver positive benefits to society.

An absence of globally accepted definitions has hindered efforts to encourage greater investor interest in impact investing projects that marry social or environmental goals with attractive financial returns.

The International Finance Corporation, an arm of the World Bank, has created a new framework of nine principles designed to bring greater transparency, comparability and rigour to the impact investing market.

The initiative, which was announced in Washington on Friday, has drawn support from UBS, Amundi, Axa Investment Managers, BNP Paribas, Credit Suisse as well as insurers including Prudential Financial and Zurich. The European Bank for Reconstruction and Development and the Development Bank of Latin America have also signed up.

Philippe Le Houérou, IFC chief executive, said the impact investment market could reach $26tn if it could be brought into the mainstream. About $502bn in assets is currently dedicated to impact investing, according to the Global Impact Investing Network, an industry body,

“We want much more money managed for impact because there is no time to lose to protect our planet and communities around the world,” said Mr Le Houérou.

The IFC’s framework requires asset managers to document the expected and actual impact of investment projects. It also suggests that asset managers should consider the achievement of impact investment targets along with financial performance metrics when awarding incentive payments to staff.

The previous lack of uniform standards has led to concerns that unsuitable projects are being promoted as impact investments, an abuse known as “impact washing”.

The IFC said regular independent verification reports should be published to ensure the actions of impact investment managers remained consistent with the new standards.

“Most investors will want to see independent verification from a specialist practitioner. The IFC’s initiative is an important step towards broadening and deepening the impact investment market,” said Mark Haefele, global chief investment officer of UBS Wealth Management.

The framework devised by the IFC allows managers to employ a variety of approaches, metrics and tools to assess impact investment projects.

Actis, a $15bn London-based private equity manager that specialises in emerging markets, has constructed a new scoring system that demonstrates how the IFC’s framework can be applied in practice. It will measure the contribution of Actis and investee companies in driving improvements across a range of five key metrics to determine a single “impact multiple” that allows comparisons between projects in different sectors and geographies.

“Unverified, opaque and incompatible approaches to measurement must be replaced if impact investing is to achieve its potential,” said Shami Nissan, head of responsible investing at Actis.

Actis invested $113m in Integrated Diagnostics, an Egyptian medical group, in 2014. It has since opened 96 new laboratories across Africa, increased the number of patients served by 14 per cent to 6.4m a year and raised the number of tests performed by 3.4m annually to 25.7m.
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