Posted on April 29, 2020 | Updated at 11AM

Managing Investments for Impact: How Investors Can Ensure They Walk the Talk

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By: Stéphanie Émond, Director of Impact, FinDev Canada

FinDev Canada issued last week our first report on our adhesion to internationally agreed Operating Principles for Impact Management. For many of us, it’s the culmination of a long and satisfying journey. It’s also the beginning of another one, hopefully even more fulfilling.

Let me explain.

FinDev Canada opened in January 2018 as Canada’s development finance institution to support the growth and sustainability of businesses in developing markets. Our over-arching purpose was clear from the start: to be an impact investor, filling the gap between where the private sector invests in developing economies and what official development assistance seeks to achieve. Being relatively new to the field, we decided to focus on three critical impact areas: women’s economic empowerment, local market development, and climate change.

The emphasis, as it should be, is on intentionality. Beyond the financial returns from our investments, we want and expect to see social and/or environmental benefits accrue to disadvantaged people in the countries where we invest. As the saying goes, we do not consider it enough to do well through finance, we must also do good.

But then comes the inevitable question: how can we know with any certainty that the work we do, no matter how noble the intention, is actually doing good?

Managing for impact from beginning to end

There’s a two-part answer to that question. First, we’ve put in place a Development Impact Framework to guide all of our decision-making at each stage of the investment process, from pre-screening, through due diligence and approval, to monitoring, and reporting. Robust monitoring and reporting of what our investments achieve is essential, but it’s just the final part of the comprehensive approach to impact investing that we’ve adopted.

Second, we joined, along with other investors, the Operating Principles for Impact Management, standards for how best to invest for impact. The Impact Principles offer a common framework enabling investors to understand and compare the impact management practices of asset managers. These principles, now agreed to by more than 90 global investors across 28 countries, are an essential reference point to assess how asset managers and owners design, integrate, and track the social and environmental impacts of their investments alongside financial returns.

FinDev Canada was among the original signatories to the Impact Principles when they were launched in April 2019 at the World Bank/IMF Spring meetings in Washington, D.C. We joined with other organizations such as BNP Paribas Asset Management in France, CDC Group in the U.K., FMO in The Netherlands, or the UBS Group in Switzerland, as well as with Cordiant Capital here in Canada, to support this new global standard for managing investments for impact.

Today, we feel that our work on impact management has turned a corner. FinDev Canada’s first report to the international secretariat that administers the Impact Principles shows that we’ve been able to achieve what we set out to do: as set out by the Principles, 100% of our assets under management are impact investments.

Multiple examples, real impact

I hope you’ll take a moment to read about how we’ve provided financing, alone or with partners, that is supporting innovative organizations having on-the-ground impact. Companies such as M-KOPA Solar in East Africa and Danper ALV in Peru, or investment funds such as Alitheia IDF in Africa and EcoEnterprise III in Latin America. We believe these investments will help to improve the lives of tens of thousands of people in meaningful and sustainable ways.

While we’re pleased with what we’ve done on impact investments to date, we’re also aware that the road ahead is a long one. The needs for financing in the countries where we work are immense, and we know that we cannot respond to those needs alone. As well, finding good investment opportunities that will have the impact we seek remains as challenging as ever.

Happily, since last year’s launch, more forward-looking investment organizations have signed on to the Impact Principles, including BlackRock in the United States, Earth Capital in the U.K., Finance in Motion in Germany, Triple Jump in the Netherlands, Sarona Asset Management in Canada, and many others.

No matter how many impact investors there are right now, however, we must marshal more investment capital towards combating climate change and enabling millions of poor and disadvantaged people to get, and remain, on pathways out of poverty. The Impact Principles offer the critical components that investors need – standardisation, transparency, verification – to participate in the impact investing movement. Now more than ever, investments must drive real and lasting impact to address the global challenges that we are all facing.