Nine international bodies, including the UN Development Programme, International Finance Corp and OECD, have joined a network led by an offshoot of Bridges Fund Management to tackle this troublesome issue.
The Impact Management Project started as work by Bridges, a London-based impact investment firm, to evaluate its activities. It has grown into a global initiative, to which over 2,000 practitioners have contributed.
“We are at a very exciting point in the evolution of impact investing, where there is a lot more interest coming from a variety of corners of the market,” said Kelly McCarthy, director at the Global Impact Investing Network in New York. “Of course we want to scale, but can we do so with integrity? That is the real crux of all this.”
Impact investing originally meant very bespoke transactions, designed to achieve specific social outcomes and a financial return. This market, monitored by the GIIN, has grown to about $230bn of investments outstanding, mostly private debt and equity deals, with an average size of $3m.
Now, many mainstream funds that buy listed shares and bonds are striving to show positive ‘impact’. A third meaning is that all investments have an impact on the world, which some argue investors should consider.
The IMP is designed to bring all these strands together, creating a common language in which investors can discuss impact. “Impact will always be in the eye of the beholder,” said Olivia Prentice, COO of the IMP, based in New York. “What we can all have is different preferences and goals. Before IMP there was no way of expressing those in a widely understood way.”
The IMP has come up with a framework for describing impact, with five dimensions: what outcomes the enterprise contributes to; who experiences them and how underserved they were before; how much benefit they gained; whether the outcomes were better than what would have occurred otherwise; and the risk that the impact will underperform.
It also has a matrix which sorts investments according to their ambition: avoid harm; benefit stakeholders; and the most ambitious, contribute to solutions.
The next stage is for the big global standard-setting organisations in the IMP network to help develop common metrics to compare investments.
With the IMP, “the conversation is taking a step up in terms of consistency”, said McCarthy. “We absolutely need to go there.”