Principles of Principals: Let’s Talk Impact Reporting
It was an honor to be in Washington D.C. on Friday for what we hope will be a landmark day for the impact investing industry. Joined by a total of 60 asset manager and institutional investors, I had the privilege to confirm Flat World Partners’ designation as an early adopter of the IFC Operating Principles for Impact Management — a succinct set of rules designed to keep investors accountable for delivering the impact they promise, without compromising returns. The principles will serve as an educational and enforcement tool at a time when the industry has reached an inflexion point.
Recent reports have confirmed what we’ve suspected for the past half-decade, impact investing is growing — and really fast. No matter where you look (GIIN, GSIA) global sustainable assets are rising and there’s no denying that impact investing is mainstream. The UN SDGs served as a set of goals for the industry to aspire toward, and the $30 trillion wealth transfer has continued to fuel its progress. While it’s certainly exciting to see the progress in the field, it now becomes even more imperative that the industry properly polices itself to eliminate misrepresentation or “greenwashing” or “impact washing”.
Two of the IFC’s principles will directly combat this unfortunately growing epidemic, differentiating them from other frameworks we have seen:
- #5: Assess, address, monitor, and manage potential negative impacts of each investment
- #9: Publicly disclose alignment with the Principles and provide regular independent verification of the alignment
There’s no shortage of information on the “good” that companies are achieving within and outside their business operations, but it’s not as easy to find the “bad.” Few companies and industries, much less Wall Street, willingly share the negative impact they have on the environment, public health or local communities. It therefore takes real, hard work to thoroughly asses an investment for its net effect. While we understand there are unintended consequences associated with most investments, as impact investors we must both identify those risks and work with the target company to either mitigate or –if possible — eliminate them. At the same time, companies or products that don’t adequately disclose their impact data — both positive and negative — should not be viewed as viable responsible options.
Unlike other impact frameworks, the IFC principles won’t simply be a “check the box” exercise for asset managers. By becoming a signatory, managers will be required to disclose on an annual basis the alignment of their impact investments with the principles and arrange for independent, third-party verification. Most importantly, every phase of this process is public, and emphasizes one of the most important features of an asset owner asset manager relationship — transparency.
The fallout from the Varsity Blues scandal — the result of one bad actor’s wrongdoing — illustrates the delicate operating environment of the impact investing field. While this higher standard of personal and professional ethics isn’t always applied to the rest of the asset management industry, it’s a principle we must uphold.
Anna-Marie Wascher, Chief Executive Officer
The IFC has addressed concerns about “impact washing”. Impact washing refers to a perceived inappropriate labelling of investment strategies or products as “impact”. The term has gained currency as impact investing has gained attention in mainstream institutional investment.
Like the idea of a common discipline and market consensus around the management of investments for impact which shapes and develops this nascent market? Join Flat World Partners and become a signatory today.
We are revolting! The time for impact is now. Sir Ronald Cohen can tell you all about this Impact Revolution in his book, On Impact.
This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited
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