The International Finance Corporation, the private sector arm of the World Bank, will today unveil new principles aimed at preventing unscrupulous companies using the impact investment label to conceal projects with negative effects.
The IFC is determined to give asset managers who want their investments to deliver environmental and social benefits confidence that the projects branded as having positive development impacts live up to their name.
Chief executive Philippe Le Houérou will set out nine “operating principles for impact management” developed in consultation with other development banks, investors and banks that it will put out for consultation before being finalised at the spring meetings of the World Bank Group in April 2019. They will include defining the impacts, setting targets, monitoring performance, managing impact and financial returns at the portfolio level, taking impact into account on exiting an investment and obtaining independent verification.
“The idea was that we see more and more impact investing but we don’t have a definition of impact,” he told GlobalMarkets, pointing to a similar push 10 years ago to lay down generally accepted standards for green bonds. “The question then was how do you avoid ‘green washing’ and now how do you avoid ‘impact washing’.”
Although impact is generally seen as delivering specific and measurable environmental and social benefits, there is no precise definition, which allows some project managers to claim other more nebulous positive benefits.
“Now we have a way to measure it and we have put a lot of effort into quantifying that so [we want to] try to bring into the tent all the goodwill that there is out in the market,” he said. He added that basic principles would help stimulate activity in impact investment as happened with green bonds that have come from zero in 2007 to a forecast $300bn next year.
However, CSOs are likely find criticisms in the document. Gerbrand Haverkamp, executive director of the World Benchmarking Alliance, told GlobalMarkets’ sister paper GlobalCapital last week that impact investment alone would not ensure the world hit the Sustainable Development Goals. “All investment has an impact, for better or worse, but there are different stages of how deliberate you can be about making sure that’s a positive impact,” he said.