World Bank to Increase Clarity around Impact Investing

Financial Times, Owen Walker, 1 September 2018: https://goo.gl/B1eQXp

Education in developing countries is one sector that provides opportunities for impact investing © EPA

The World Bank body that promotes investment in developing countries has created a definition of impact investing to try to stop organisations wrongly using the strategy’s popularity for gain.


Impact investing is a $1.3tn market that has attracted many followers. The approach aims to marry social or environmental outcomes with financial returns.


Some practitioners fear that “impact washing”, where organisations hide unpopular practices by investing in noble causes, could harm the strategy’s reputation.


“We are very concerned about impact washing,” said Mark Haefele, global chief investment officer of UBS Wealth Management, which offers impact funds.


“We have to make sure that the end-client has a clear understanding about what impact investing is, and that is why we have been very keen to have a definition.”


The International Finance Corporation has created a list of “the 13 principles of impact investing” and plans to unveil it at the annual meeting of the World Bank and the International Monetary Fund in Indonesia next month.


The IFC groups the principles into five categories: strategy, structure, portfolio management, exiting investments and verifying achievements.


Hans Peter Lankes, a vice-president at the IFC, said the organisation had been urged to develop the principles by investors concerned at “dilution of the brand”.


“There have been shifting definitions, There is a certain degree of confusion,” he said. “Asset owners have been asking for clarity.” He added that the IFC had met interested parties in London, New York and in Asia.


The corporation hopes that a handful of asset owners and managers will sign up to the principles at the launch. This would mirror the launch of the IFC’s Equator Principles 15 years ago, which set out a way to assess environmental and social projects.


The IFC said it was unable to provide the names of first adopters at this stage.


Impact investing has been one of the fastest-growing parts of asset management. Its popularity is often put down to the power of millennial investors, who have a special interest in social and environmental issues.


“There has been a huge amount of attention and coverage of impact investing in the past 18 months,” said Shami Nissan, head of responsible investing at Actis, the emerging markets investment company.


“There is a need for the investment industry more broadly to understand what we all mean by these terms.”


The UN-backed Principles of Responsible Investment initiative said 450 investors allocated $1.3tn to impact investment projects in 2016. The group launched its own resource for impact investing in August, known as the Market Map, to help organisations define and assess projects.

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