Operating Principles for Impact Management (the Principles) describe the essential features of managing investment funds with the intent to contribute to measurable positive social, economic, or environmental impact, alongside financial returns. This goes beyond asset selection that aligns investment portfolios with impact goals (for example, the SDGs), to requiring a robust investment thesis of how the investment contributes to the achievement of impact. Origination & Structuring seeks to establish the investor’s contribution to the achievement of impact, assess the expected impact of each investment, based on a systematic approach, and assess, address, monitor, and manage the potential negative effects of each investment.
The key is to establish and document a credible, transparent narrative on the investor’s contribution to the achievement of impact for each investment. Contributions can be made through one or more financial and/or non-financial channels, and assessed for the individual investment, or from a portfolio perspective. The narrative should be stated in clear terms and supported, as much as possible, by evidence. There should also be a process to manage impact achievement at the portfolio level, similar to that of managing financial returns. The objective of the process is to establish and monitor expected impact performance for the whole portfolio, while recognizing that impact may vary across individual investments in the portfolio.
For each investment, there should be an assessment, in advance and, where possible, quantifying the concrete positive impact potential deriving from the investment. The assessment should use a suitable results measurement framework that aims to answer these fundamental questions:
1. What is the intended impact?
2. Who experiences the intended impact?
3. How significant is the intended impact?
The likelihood of achieving the investment’s expected impact should also be assessed, including identifying the significant risk factors that could result in the impact differing from expectations.
In assessing the impact potential, seeking evidence to assess the relative size of the challenge addressed within the targeted geographical context is essential. Opportunities to increase the impact of the investment should also be considered. Where possible and relevant for the strategic intent, considering indirect and systemic impacts should also be carried out. Indicators shall, to the extent possible, be aligned with industry standards and follow international best practice conventions.
For all investments, potential negative effects should be avoided, minimized, or mitigated by assessing and monitoring Environmental, Social and Governance (ESG) and other non-financial risks, as well as the performance of the investee in managing material ESG issues. Where appropriate, the investee company should be engaged to seek its commitment to take action to address potential gaps in current investee systems and processes, using an approach aligned with good international industry practice. As part of portfolio management, investees’ ESG risk and performance should be monitored, support provided, and unexpected events addressed.
Our blog series on the Impact Investing will look at each of the nine operating principles for impact management in more detail. See how the WOIMA waste-to-value solutions can help solve some of the core ESG challenges in emerging economies.
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