• Impact management, as defined by the Impact Management Project (IMP), involves “learning about—and improving—effects experienced by people and the planet.” Impact measurement is a component of impact management.
• While impact measurement and impact management are sometimes used interchangeably, impact management is understood to mean a more holistic approach to incorporating impact considerations at each stage of the investment process.

• Impact verification is the review and assessment of an investor’s impact management practices or impact performance against specific industry standards.
• Verification is generally conducted by an independent, third party service provider with relevant subject-matter expertise, such as BlueMark.

• An impact thesis, as defined by the Global Impact Investing Network (GIIN), “integrates all the pieces of a complex investment strategy into a single narrative that is thoughtful, thorough, and supported by data and other evidence.”
• We define an impact mandate as a promise by an investor to achieve certain social or environmental objectives for its backers, typically memorialized in an impact thesis.
• An impact thesis or impact mandate that is aligned with industry standards can help impact investors more accurately and confidently communicate their impact strategy to the market.

We define impact-washing as the misuse of the “impact” label to describe an investment strategy or product that fails to adhere to accepted market standards of impact practices and performance.

• Impact verification is essential to strengthening trust and accountability in the impact investing market because it provides a third-party perspective on whether investors’ impact practices and performance are credible.
• By helping impact investors align with industry standards, impact verification can also play an important role in countering the impact-washing problem.

• Verification involves an in-depth analysis of an investor’s or company’s impact management practices and/or impact performance to determine whether they are in alignment with industry best practices, such as those outlined in specific standards.
• Impact verification relies on a variety of documentation, data and discussions to form a holistic picture of how investors and companies approach the impact in impact investing.

• There are several standard-setting organizations currently working on instituting verification requirements.
  • The Operating Principles for Impact Management (“OPIM” or “Impact Principles”) are a set of standards and best practices for impact management first introduced in April 2019 by the International Finance Corporation (IFC). Principle 9 specifically requires all signatories to independently verify and disclose their alignment with the Impact Principles on a regular basis.
  • The SDG Impact Standards were created to provide a “clear framework for integrating impacts on SDGs into business and investment decision making.” To date, SDG Impact Standards have been introduced for SDG Bonds, Private Equity, and Enterprise, all of which are currently in a consultation period involving a broad range of stakeholders. The UNDP also plans to establish independent assurance requirements for the Standards, including a Certification program that “will recognize where each Practice Indicator is not yet observed, developing, or developed, guided by suggested evidence” and a SDG Impact Seal that will be awarded by a third-party independent certifier.
• Meanwhile, other organizations are working to raise the bar on impact and sustainability practices, reporting and disclosures.
  • The Principles for Responsible Investment (PRI) launched a consultation process in 2019 to update its Reporting Framework to ensure that the PRI’s reporting and assessment: “has clear objectives of how it will contribute to driving change in the investment industry; is fit for purpose; remains relevant to evolving responsible investment practices; and is useful for signatories and the responsible investment market.” The new Reporting Framework, to be introduced in 2021, will likely include “core” questions that are close-ended and mandatory to report for signatories. The PRI has also signaled that it will begin delisting signatories that fail to meet minimum requirements after two years of engagement.
  • The Impact Management Project (IMP) “provides a forum for organisations to build consensus on how to measure, assess and report impacts on environmental and social issues.” The IMP also convenes a Practitioner Community of over 2,000 organisations to debate and find consensus (norms) on impact management techniques, and facilitates the IMP Structured Network – a collaboration of organizations that are coordinating efforts to provide complete standards for impact measurement, assessment, and reporting. The IMP recently published an investor handbook on impact-financial integration through its “Impact Frontiers” initiative.
  • The European Commission has been working on developing a taxonomy for sustainable finance since early 2018. In March 2020, the Technical Expert Group (TEG) published its final report on the EU taxonomy, which contains “recommendations relating to the overarching design of the EU taxonomy, as well as extensive implementation guidance on how companies and financial institutions can use and disclose against the taxonomy.” The Commission is also working on a taxonomy for climate change mitigation and adaption, which should be established by the end of 2020 and put into effect by the end of 2021. The first company reports and investor disclosures using the EU taxonomy are currently due at the start of 2022.
  • The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.” A growing number of organizations with a combined market cap of more than $12 trillion now use the TCFD recommendations to disclose their climate risks.

• As of September 2020, there were more than 100 signatories to the Principles. Of these 100+ signatories, approximately 71 have published disclosure statements and 36 have published verifier statements.
• A group of 60 impact investors collectively managing more than $350 billion in impact assets across a range of investment strategies and asset classes adopted the Impact Principles when they were first introduced in April 2019.

• We developed our verification methodology to meet the growing investor demand and market expectation for greater confidence and credibility in the impact label, especially as impact claims are more closely scrutinized by a range of stakeholders. This idea guided our verification approach, which is designed to bring three specific benefits to the impact investing market:
  • Accountability, by evaluating whether impact investors’ practices and performance are aligned to accepted market standards
  • Discipline, by encouraging transparency, adoption of industry best practices, and shared learning that continuously raises the bar for performance
  • Comparability, by establishing benchmarks and ratings that allow stakeholders to compare different approaches to impact investing on a consistent basis

• We developed a proprietary rating scale—Advanced, High, Moderate, and Low—to assess the degree to which an investor’s impact management practices align with an industry standard (e.g., OPIM) based on our understanding of industry best practices and retained knowledge of the impact investing field.
• This rating system is designed to highlight areas where investors can enhance their impact management processes, recognizing that best practices will continue to evolve over time.

In general, verifications can take anywhere from two to six weeks to complete, depending on the type of verification and the degree of complexity of the strategy or approach.

• As part of each engagement, we verify whether or not a client is aligned to industry standards and best practices using our custom methodology.
• We also share recommendations on how clients can improve their alignment, and provide a benchmark through which clients can compare their performance against their peers.
• The results of the impact verification and the list of specific recommendations are provided in a verifier statement that clients can share with stakeholders or release publicly and a deck that the BlueMark team will present directly to the client.

• As of September 202, we have completed nearly 100 verifications for a range of investor types—private markets investors, public markets investors, wealth management firms, development finance institutions, and foundations.

• We are currently piloting a new service for smaller investors—generally defined as those having less than $100 million in asset under management for private equity firms and less than $250 million for private debt firms—seeking to attain alignment with the Operating Principles for Impact Management. The goal of this specialty service is to encourage and enable greater industry-wide adoption of best practices by making impact verification more easily accessible to a broader range of impact investors.
• Please contact us directly at [email protected] for more information about this service and to determine if your firm would be a good fit.

• Our approach to impact verification is designed to be aligned with industry standards or frameworks and compatible with client needs. It is up to the client to define the scope of the ‘impact’ assets that should be covered by a verification, whether that is the entire organization or just a piece of it.
• Some standards specifically require each signatory to state the amount of assets that are in alignment (e.g., “Covered Assets”) as part of their disclosure statement or verification statement.