IFC sees $26trn appetite for impact investing as investors back new principles

But CEO Le Houérou acknowledges jury still out on impact/returns debate

In a week when the International Finance Corporation (IFC) released a new report estimating the appetite for impact investing at $26trn and launched its new Operating Principles for Impact Investing, the body’s CEO Philippe Le Houérou acknowledged that “the jury was still out on whether it was possible to achieve both impact and returns”.

The IFC, now calling itself one of the oldest impact investors (“doing it even before the term was coined”), is looking to provide hard data to challenge this perception.

In the new report — Creating Impact: The Promise of Impact Investing — it says that, on average, the IFC’s realized equity returns outperformed the MSCI Emerging Market Index from 1998 through 2016.

The IFC and other development finance institutions are working on making decades of data like this on investing in emerging markets, particularly infrastructure, available to institutional investors.

“It’s something that the G20 has asked us to do,” says Neil Gregory, the IFC’s chief thought leadership officer.

He says: “We can see the risk and return profile of investing assets in emerging markets, particularly in infrastructure, is often better than investing in lower rated debt in developed markets.

“Our own data and experience tells us that the risks are lower than market perception.”

On the launch of the IFC report at the Brookings Institution in Washington last week, Alifia Doriwala, managing director at Rock Creek Group, said data was critical. “It’s clear from data over the last 15 years that investment opportunities are out there and you can achieve both (impact and financial return).”

Sonal Shah, the former White House official who is executive director at the Beeck Center for Social Impact, warned there was still “a lot of pushback” on impact investing in terms of what is meant by impact returns and financial returns. “It is very clear markets don’t think both of those can happen,” she said.But, Jenn Pryce, President and CEO, Calvert Impact Capital, a $2bn impact investor (see previous RI interview here), said she was bullish about the market – and that track record is emerging.

The new IFC Operating Principles for Impact Management has seen 60 institutions sign up with at least $250bn in impact assets under management.

“Our own data and experience tells us that the risks are lower than market perception.”

The nine principles are aimed at enhancing discipline around impact investing and signatories have committed to disclose annually how they are implementing the shared principles and have committed to independent verification of impact management systems.

The signatories are investors across the public and private sector. Big fund management signatories include BNP Paribas Asset Management, AXA Investment Managers, Amundi, Credit Suisse and UBS.

It’s not the first time the IFC has helped establish principles for markets. It led the creation of the Equator Principles for banks and was a member of the executive committee that set up the Green Bond Principles.

Le Houérou called the new principles “history in the making”.

“We believe there is now potential to bring impact investing into mainstream.”

The week before the launch, the Global Impact Investing Network estimated the current size of the impact investing market to be $502bn globally in a first-of-its-kind report on the market.

GIIN’s director of strategy Sapna Shah says it is the most comprehensive estimate available building on its own data and partnerships. She says it avoids double counting of assets and is based on several years of research.

Alongside this, the GIIN updated its Characteristics of Impact Investors that Shah describes as a “clear sense of minimum expectations for participation in the impact investing market”.