Impact management lacking at later stages of investment cycle, finds research

Impact management practices are less robust at later stages of the investment cycle, with just 20% of impact investors following up on impact underperformance with investees, finds new research. 

A study by impact verification business BlueMark, which analyses how the IFC’s Operating Principles for Impact Management are being used by the market, found that when impact investors do follow up on underperformance they tend to do so through engagement with the underlying company or companies. 

Last year, insurance giant Zurich said it would “invest what is needed” to meet a shortfall in the environmental and social targets of its impact investment portfolio – but the practice remains extremely rare.

It found just 17% of have a process to assess the sustainability of impact at exit, and only 11% solicited input from stakeholders to assess impact performance. 

It also found that 93% aligned with the Sustainable Development Goals, 97% had a consistent approach to compare impact performance across investments and 47% aligned staff incentives with impact performance. 

But BlueMark warned that “impact investors have work to do to deliver on their good intentions”, with only 32% monitoring and reviewing any unexpected positive or negative impacts of their investments. It said the research could act as a “Practice Benchmark” for the impact investment industry. It is currently aligned with the IFC Operating Principles for Impact Management but may evolve to incorporate standards such as SDG Impact from the UN and the EU’s Sustainable Finance Disclosure Regulation (SFDR). 

The report concludes that: “While the Impact Principles and the emerging SDG Impact Standards represent significant advancements in the market’s common understanding of standards for impact management, confusion remains about how impact investors should report their impact performance. 

“Asset allocators and managers have a particular hunger for impact performance assurance and benchmarks, which BlueMark intends to contribute to even as common standards for performance reporting remain elusive.”