Investors now have more clarity and consistency on what constitutes “impact investing.”
The International Finance Corporation unveiled its Operating Principles for Impact Management on Friday, defining what impact investment is and outlining the essential features of managing impact investment funds via an end-to-end process – from strategy to origination and structuring, portfolio management, exit and independent verification.
Nearly 60 impact investors in the private equity industry with about $250 billion of assets among them including KKR, TPG, Actis and Partners Group have signed up to the principles, IFC said in a statement.
The principles may be implemented through different impact management systems, tools and approaches, and are designed to be fit for purpose for a wide range of institutions and funds, IFC noted on its website. “The principles do not prescribe which impacts should be targeted, or how impacts should be measured and reported.”
“The principles are an important step in the private equity industry because there is a real proliferation of people gravitating towards impact investing and among the LP community, real ambiguity over what that means,” Adam Heltzer, Partners Group’s head of ESG and sustainability, told sister title Private Equity International. The principles give shape and direction to what impact investing is, distill impact investing into the nine elements and set some minimum standards, he added.
Heltzer also said independent verification – the most controversial of the principles because of the extra effort and transparency implied – is a good thing because it carries more weight and accountability.
IFC estimates that investor appetite for impact investing is as high as $26 trillion – $21 trillion in publicly traded stocks and bonds, and $5 trillion in private markets involving private equity, non-sovereign private debt and venture capital.
Private impact funds raised approximately $71 billion in vintage years 2008 to 2018, according to IFC’s report Creating Impact: The Promise of Impact Investing.
Recent years have seen the emergence of newer entrants to the impact investing space. In February last year, KKR registered KKR Global Impact Fund in Luxembourg, according to registry documents. A month later, Partners Group launched PG LIFE, an investment strategy focused on the UN’s Sustainable Development Goals. In October last year Hamilton Lane started raising capital for its debut impact fund – Hamilton Lane Impact Fund – according to a filing with the Securities and Exchange Commission.
IFC’s Operating Principles for Impact Management are the result of a three-month-long consultation that included asset managers, asset owners, asset allocators, development banks and financial institutions.