BlueMark, a provider of independent impact verification services for investors and companies, has created a first-of its-kind benchmark for tracking best practices in impact management. Designed to root out impact-washing, BlueMark’s benchmark allows market participants to readily differentiate between impact leaders and learners.
The benchmark is based on aggregated data and insights from 30 impact verifications for investors with a combined USD99 billion in impact assets under management on their alignment with the Operating Principles for Impact Management (“Impact Principles”), the market standard for impact management practices. Each BlueMark impact verification involves conducting multiple interviews with client teams and reviewing hundreds of pages of investment policies, transaction documents, data, and reports.
The benchmark includes three distinct categories that define the practices of leading, median and learning impact investors, providing a dynamic understanding of what it means to rigorously manage for impact. While the research sample analysed by BlueMark reflects impact investors that have committed to pursue alignment with the Impact Principles, thereby embracing industry best practices, there are still revealing differences in how different investors approach impact management.
Practice Leaders – Practice Leaders are in the top quartile of the sample (75th percentile and above). These standard-bearers implement all of the core elements of impact management, as well as several leading-edge practices that may go above and beyond best practices. They are also committed to further learning and improvement that helps to continually advance the bar for best practice.
Practice Median – The Practice Median reflects the impact management practices of the median impact investor in the research sample (50th percentile). Investors at the Practice Median implement many of the core elements of impact management, but also have significant room for development.
Practice Learners – Practice Learners are in the bottom quartile of the sample (25th percentile and below). These investors have well-articulated impact intentions, but they lack some of the core impact management practices needed to generate positive impact. Many are early in their impact investing journeys, while others have yet to embed impact considerations at key stages of the investment process.
“The idea of a benchmark is essential to the continued institutionalisation and maturation of the impact investing market,” says Christina Leijonhufvud, CEO of BlueMark and lead author of the report. “By establishing a shared consensus on best practices in impact management, we have created a valuable tool that we hope market participants can use to improve their own practices and to see where they stand against their peers.”
The 30 impact verifications cover a broad range of investor types and asset classes and highlight key opportunities and challenges for practitioners. Key findings include:
Growing consensus around the SDGs. 93 per cent of impact investors in the sample align their investments with the Sustainable Development Goals (SDGs), and 48 per cent specifically align with the 169 targets underlying the SDGs
Alignment of incentives with impact still in early stages. 43 per cent directly align staff incentive systems with impact performance, including 17 per cent that tie annual bonuses to impact and 3 per cent that tie carry to impact
More effort needed to systematically avoid harm. 90 per cent identify select ESG risks in their investment decisions, but only 43 per cent systematically engage investees to address ESG gaps and unexpected risks
Impact performance needs to be more inclusive of stakeholders. 57 per cent compare actual with expected impact performance, yet just 11 per cent solicit input from key stakeholders to understand their impact performance
Impact management is a continuously iterative process. 32 per cent monitor and review unexpected positive and negative impacts, and 30 per cent use learnings from impact performance reviews to improve investment decisions and portfolio management
“For impact investing to have the power it can, the world and investors need to be able to see and measure impact—transparency is central to its integrity,” says Dr Rajiv J Shah, President of The Rockefeller Foundation, one of the founding investors in BlueMark. “Impact verification will help us hold investors accountable for both their claims and their practices.”
BlueMark will continue to update the Practice Benchmark as the firm completes additional verifications. BlueMark is also working on developing a similar benchmark for measuring and tracking impact performance.
The impact investing organisations that have had their impact management systems verified by BlueMark include: Bain Capital Double Impact, Big Society Capital, BlueOrchard Finance, Calvert Impact Capital, CDC Group, Community Investment Management, Closed Loop Partners, DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, European Bank for Reconstruction and Development (EBRD), EDFI Management Company (EDFI-MC), FinDev Canada, Finnish Fund for Industrial Cooperation (Finnfund), Franklin Templeton Social Infrastructure Fund, FullCycle Management, Investment Fund for Developing Countries (IFU), Kohlberg Kravis Roberts & Co. (KKR), LeapFrog Investments, LGT Venture Philanthropy Foundation, Nuveen, Partners Group, PG Impact Investments, Prudential Financial (Impact & Responsible Investing), Quona Capital Management, The Osiris Group, UBS Group, and Women’s World Banking Asset Management.
