ImpactAlpha – “Why impact investors should pay attention to practices, not just performance”

ImpactAlpha – “Why impact investors should pay attention to practices, not just performance”

This piece was originally published in ImpactAlpha.

Most of us were taught growing up that the ends don’t justify the means. It matters how you go about achieving your goals. The same is true when it comes to impact investing – the process by which investors achieve their results matters as much as the results themselves. Just as an athlete or musician can only master their craft through disciplined practice, an impact investor will be better-positioned to achieve impact results if they have high-quality and rigorous impact management practices.

The good news is that the impact investing industry is advancing standards for both practices and performance, with recent progress particularly on practice standards. These standards and frameworks – notably including the Operating Principles for Impact Management (Impact Principles), Impact Management Project (IMP) and the SDG Impact Standards – describe how investors can integrate impact considerations throughout the investment process, from goal-setting to due diligence to exit.

Still, many practitioners are unsatisfied with the focus on process and practice, and believe that impact performance results and outcomes (e.g., carbon emissions reduced, quality jobs created, lives saved or improved, etc) speak for themselves. While it is hard to debate that results matter, the standards for impact performance reporting are still in development.

Certainly, encouraging progress is underway on this front thanks to the leadership of organizations like the Global Impact Investing Network (GIIN), which recently published its “Compass: Methodology for Comparing and Assessing Impact”, and the IFRS Foundation, which is working on creating an International Sustainability Standards Board (ISSB) to harmonize various sustainability reporting standards, an initiative led by Clara Barby from the IMP.

However, in the meantime, most investors and companies lack the information needed to effectively compare one firm’s impact performance results to another’s.

While efforts to establish unifying standards for impact performance measurement and reporting continue, rigorous evaluation of investors’ impact management practices can tell us a great deal about the authenticity of an investor’s stated impact objectives and their chances for achieving those objectives.

Consider a scenario where two fund managers specializing in real estate both claim to deliver similar levels of impact and financial performance – for example, providing 10,000 affordable housing units to communities in need while earning risk-adjusted returns of 6-8% per annum. An expert, third-party verification of those managers’ impact management practices by a firm like BlueMark would provide insight as to how each manager:

  • Defines and evaluates expected impact for each potential investment property;
  • Tracks and monitors whether the properties are achieving the impact expected; and
  • Works with property managers to solicit input from community members and other stakeholders in the evaluation of impact and to address instances of impact underperformance;

These are among the kinds of practices that the impact investing community considers proper impact management. Naturally, it’s fair to expect that the manager with the more thoughtful and disciplined approach to impact management would be more likely to realize optimal impact results.

This is why independent verification is an important enabler for allocators to efficiently “look under the hood” of managers’ investment practices to understand how effectively impact considerations are integrated throughout the lifecycle of the investment. A well-designed verification methodology that’s grounded in impact management expertise can be an important due diligence tool for allocators looking to compare the practices (as well as the performance) of various fund managers.

The standardization of best practices in impact management

The rapid rise of standards like the Impact Principles and SDG Impact Standards shows that impact management practices will remain an important piece of the impact investing puzzle. Already, there is a growing expectation that impact investors be aligned to one or more of these standards, with third-party verification emerging as an important accountability mechanism to assure that investors have the right systems, processes, and capabilities to contribute to achieving the intended impact.

BlueMark’s ‘Making the Mark’ research report, which was based on 30+ verifications of impact management systems, showed significant differences in how investors approach impact investing, with some investors earning top scores on their alignment with the Impact Principles while other investors had significant gaps or shortcomings in their approach. To take our research a step further we created the BlueMark Practice Benchmark, which functions both as a resource for investors to be able to see how they stack up against their peers and as a tool for asset allocators and other market participants to differentiate between Practice Leaders (those in the top quartile) and Practice Learners (those in the bottom quartile).

While impact investors shouldn’t lose sight of the importance of delivering impact performance in line with stated goals, the process by which those outcomes are achieved is just as important. Impact investors should be able to show, for example, that they are contributing to the achievement of reported impact results, engaging with investees to minimize negative consequences, risks, or side-effects, and taking measures to ensure impact is sustained beyond the life of the investment.

One day the impact investing industry may find a way to integrate both practices and results into a comprehensive disclosure and reporting framework. Until that day arrives, it’s imperative that impact investors back up their impact claims by adopting standards for impact management practices in addition to reporting out on their results.


Christina Leijonhufvud is the CEO of BlueMark, where she manages all aspects of business strategy, new product development, and external relations. To date, BlueMark has completed 40+ impact verification assignments across investor types and asset classes.

FundFire – “Manager Alert: Regulators Want Proof of Your ESG, Impact Chops”

FundFire – “Manager Alert: Regulators Want Proof of Your ESG, Impact Chops”

This article was originally published in FundFire and is co-authored by Tristan Hackett, Director, Europe for BlueMark, and Christina Leijonhufvud, CEO of BlueMark.

Private fund managers may know their investors are increasingly embracing sustainable, impact or environmental, social and governance investment approaches – and that regulators across the globe are boosting focus on these strategies.

But managers now face a daunting new regulatory standard – stricter definitions of what constitutes responsible investment strategies that not only exposes these firms to compliance scrutiny, but also lets investors quickly assess whether a private fund meets the mark or is merely wrapping itself in green offering documents.

The U.S. is still taking its first steps on this path, with the Securities and Exchange Commission this year issuing a new ‘Risk Alert’ on ESG investing outlining the early stages of examining investment advisers for “greenwashing.” But the major shift has taken place in Europe, a market most private fund managers can’t ignore – and that historically has paved the way on ESG issues in the U.S.

The European Union made a gravity-shifting move earlier this year by introducing formal requirements for the Sustainable Finance Disclosure Regulation (SFDR) that represent one of the most direct anti-impact washing efforts to date.

Our recent public statement on the SEC and SFDR warns managers that the earth has moved: “Regardless of which label an investor chooses to use – ESG, responsible, sustainable, impact, etc. – the message from regulators is clear that investors must have the right policies and practices in place to back up what they claim to be doing or the results they claim to be achieving.”

But managers should also recognize that these new standards have the potential to push existing impact management concepts and best practices into the mainstream. SFDR aligns with and reinforces existing impact investing frameworks and standards, like the Impact Management Project (IMP) and the Operating Principles for Impact Management (the Impact Principles). And its activation represents an important inflection point for the financial community broadly – and for the sustainable finance community specifically – in the fight against greenwashing and impact-washing.

SFDR is at heart an anti-greenwashing rule that requires all investment firms operating in Europe to categorize their investment products according to how they approach sustainability risks and opportunities. Investment managers with responsible investing products can choose among three different categories, each with specific and increasingly stringent disclosure requirements. These categories also roughly align with the IMP’s ABC classification framework introduced in 2015, which encourages investors to think more holistically about the positive and negative impacts of their investment decisions.

The first category, Article 6, is the minimum standard, which requires all financial market participants to disclose their policy on integrating sustainability risks and, in doing so, show how they do (or do not) “avoid harm” in their investment decision-making processes.

The second bucket, Article 8, is a higher standard for investment products that are actively promoting environmental and social characteristics, and it requires investment managers to disclose how they seek to “avoid harm” as well as “benefit stakeholders.”

The last grouping, Article 9, constitutes the highest standard, and is generally applicable to funds that have sustainable investment as their core objective. Article 9 requires investment managers to go a step further and disclose how they are actively “contributing to solutions,” particularly as it relates to climate change and other sustainability issues.

The higher bar for Article 9 funds represents a significant nod to many of the existing industry best practices for impact management. But whether an investor aims for a low bar or a high bar, the entire market benefits when there is a shared understanding of who is doing what and why.

Private fund managers should be thoughtful regarding which category they choose. While many investors may opt for the slightly less onerous Article 8 designation, we believe any self-described impact investors should be prepared to be accountable for the Article 9 designation.

Picking a category is merely the first step. Private fund managers will need the right tools and frameworks to get into compliance with SFDR. A good starting point for managers still unfamiliar with IMP and the Impact Principles would be to ensure they have developed a robust thesis that articulates the fund’s concrete ESG or impact objectives (while drawing on industry standards), and that describes how the investment strategy helps to achieve those objectives.

SFDR will not only change the game for managers in their compliance function. Initial data on the European investment universe shows just how far SFDR’s reach could be across managed assets in the market. A recent Morningstar analysis of more than 150,000 investment products found that 20.9% of funds are classified as Article 8 and 2.7% are classified as Article 9, representing $2.5 trillion in combined assets under management. Several of Europe’s biggest asset managers – including Amundi, BNP Paribas and Robeco – are reportedly planning to have at least 75% of their assets aligned with either Article 8 or Article 9 by the end of the year.

The investment management industry’s current impact-washing and greenwashing problem is in large part caused by financial market participants identifying themselves as “impact” or “sustainable” without any concrete evidence to back up such claims. SFDR was specifically designed to confront this problem by increasing transparency and accountability in the marketplace for sustainable investments.

But perhaps just as important is the regulation’s potential to encourage more investors to take the critical next steps, such as signing onto the Impact Principles. The rollout of SFDR could emerge as a turning point in the history of sustainable finance – the moment in which a broad swath of the market agrees on what is or isn’t sustainable and gets to work addressing urgent sustainability challenges.

ImpactAlpha – “Why impact investors should pay attention to practices, not just performance”

ImpactAlpha – “Why the impact investing industry is ready for a practice benchmark”

This piece was originally published in ImpactAlpha.

Benchmarks play a crucial role in financial markets and asset management specifically, allowing investors to see how they stack up against their peers and making the allocation of capital more seamless and efficient. By far the most commonly used benchmark today is the S&P 500 (usually taking the form of the SPY ETF managed by State Street), which tracks the performance of the 500 largest U.S. companies.

There are similar benchmarks for virtually every asset class and type of strategy — Russell 3000 for a larger pool of U.S. stocks, MSCI ACWI for global equities, or U.S. Treasuries for bonds with varying maturities. Performance against these benchmarks is often used as a short-hand way to determine if an investor is outperforming–or underperforming–the market over a certain time period. Eventually, more capital tends to flow to the best-performing managers and away from the worst-performing managers, thereby achieving a more efficient allocation of capital.

The impact investing industry is still a few steps away from having a globally recognized impact performance benchmark. But there has been significant progress towards a practice benchmark–essentially a way for market participants to determine the extent to which impact investors are aligned with industry best practices for impact management.

This is now possible thanks to growing consensus on what constitutes best practices, largely driven by organizations and standards like the Impact Management Project (IMP), the Operating Principles for Impact Management (Impact Principles), and the SDG Impact Standards. Recognizing the importance of accountability, these standard-setters are also introducing independent assurance requirements, requiring impact investors of all shapes and sizes to find a reputable third-party to review and verify their impact management practices.

These verifications represent a data gold mine. Each new verification reveals interesting data and insights both about the impact investing firm in question but also about the impact investing market as a whole. The more verifications that are completed, the clearer the picture emerges of how many impact investors are following best practices versus which ones may be engaged in impact-washing.

Introducing the BlueMark Practice Benchmark

BlueMark was founded in January 2020 to meet the market demand for expert, third-party verification services that was created by the introduction of the Impact Principles. Each year, we publish a report with aggregated findings from the verifications we have completed to date.

In our second annual ‘Making the Mark’ report, we took the results of 30 impact verifications against alignment with the Impact Principles to create the BlueMark Practice Benchmark, a first-of-its-kind tool designed to root out impact-washing and help market participants readily differentiate between Practice Leaders and Practice Learners. This Benchmark is composed of three distinct categories.

  • Practice Leaders – Practice Leaders represent the top quartile of our sample (75th percentile and above). These standard-bearers implement all of the core elements of impact management, as well as several leading-edge practices that may go above and beyond the requirements of the Impact Principles, though they often still have discrete areas for improvement.
  • Practice Median – The Practice Median reflects the impact management practices of the median impact investor in our sample (50th percentile). Investors at the Practice Median implement many of the core elements of impact management, but also have significant room for development.
  • Practice Learners – Practice Learners are in the bottom quartile of our sample (25th percentile and below). These investors may have good intentions, but they lack many core impact management practices to generate positive impact. Many are early in their impact investing journeys, while others have yet to embed impact considerations at key stages of the investment process.

By categorizing impact management practices in this way, we have created a tool for impact investors to benchmark themselves against their peers. Our hope is that the Benchmark motivates Practice Learners to improve and Practice Leaders to continue innovating and further raising the bar for best practice. What it takes to become a Practice Leader will change over time as new practices and standards emerge, driving a race towards ever better management of impact investing practices.

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This chart shows the aggregated ratings of investor alignment with the Impact Principles based on BlueMark’s first 30 verifications. The chart is divided up into three distinct categories–Practice Leaders, Practice Median, and Practice Learners–creating a mechanism that impact investors can use to benchmark themselves against their peers and to learn from others in the market.

Just as financial benchmarks have helped bring more transparency and accountability to different strategies and asset classes, thereby unlocking institutional capital flows, we believe an impact practice benchmark is essential to the continued institutionalization and maturation of the impact investing market. And as the impact verification market grows from dozens of independent verifications to hundreds or even thousands of verifications, the more data we will have that can be used to differentiate between the many investors now investing for impact.


Christina Leijonhufvud is the CEO of BlueMark, Tideline’s new verification business. She manages all aspects of business strategy, new product development, and external relations, and has directly led 30+ impact verification assignments across investor types and asset classes.

ImpactAlpha – “Why impact investors should pay attention to practices, not just performance”

ImpactAlpha – “What we learned from 30 impact verifications of investor alignment with the Operating Principles for Impact Management”

This piece was originally published in ImpactAlpha.

Just like you can learn a lot about a car by looking under the hood, you can learn a lot about an impact investor’s practices and processes by analyzing their impact management systems.

The Operating Principles for Impact Management (the “Impact Principles”) were introduced in April 2019 to help address the market’s need for a shared set of best practices for impact management. BlueMark was founded a few months later, in January 2020, to meet the market demand for an expert, third-party that could verify impact investors’ alignment with the Impact Principles.

To date, we have completed more than 35 of these impact practice verifications, and recently published our second annual ‘Making the Mark’ report with data and insights based on our first 30 verifications. The full report, “Making the Mark: The Benchmark for Impact Investing Practice,” has more than 40 individual data points on everything from how impact investors are setting impact objectives to how they manage ESG risks in their investment portfolios. By analyzing each data point as part of a larger overall picture, we identified three major themes that show where the impact investing industry is today and what key developments will define the market’s future.

Key Learning #1: Impact investors have work to do to deliver on their good intentions

In BlueMark’s inaugural 2020 Making the Mark report, we highlighted that investors’ impact management practices are often less robust at later stages of the investment lifecycle. BlueMark’s first 30 verifications reaffirm this pattern. Impact investors in our sample typically excel at establishing credible strategic impact objectives aligned to the Sustainable Development Goals (SDGs) and at assessing impact at the portfolio level (corresponding to Impact Principles 1 and 2).

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This image provides a snapshot of BlueMark’s Practice Benchmark Dashboard, which shows the key practice indicators associated with Practice Leaders, the Practice Median, and Practice Leaders.

However, while most impact investors evaluate potential (ex ante) impact performance and ESG risks in due diligence and subsequently monitor impact and ESG performance (Principles 3-6), the majority of investors still have room to improve on assessing their contribution to investees’ impact and on following up with investees on impact underperformance, among other areas. Verified investors struggle most to ensure impact endures at and beyond exit (Principle 7) and to consistently adapt their processes based on lessons learned (Principle 8).

Given that impact investing has only emerged as a mainstream investment approach in the last few years, it’s reasonable to expect that some investors may lack experience with the latter stages of the impact investment lifecycle. This should improve as more impact investors become familiar with best practices for many of the more nuanced aspects of impact management.

Key Learning #2: Strengths and challenges vary by investor type 

We also found evidence that shows how different investor types have different strengths and areas for improvement when it comes to impact management.

For example, based on our research sample, development finance institutions (DFIs) tend to have more robust ESG risk and performance management systems (Principle 5), while specialized asset managers that invest only in impact strategies often have stronger practices to ensure impact is sustained beyond exit and to apply lessons learned from reviewing impact performance (Principles 7-8). These “impact-only” managers tend to be less consistent in comparing expected and actual impact performance (Principle 6), though, while “diversified” managers pursuing impact as one of multiple investment strategies are less likely to align staff incentive systems with impact performance (Principle 2).

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This chart shows the median rating by impact investor type based on BlueMark’s analysis of investor alignment with the Impact Principles. BlueMark’s proprietary rating system uses a four-party scale (Low, Moderate, High, Advanced), providing a shorthand way for impact investors to assess where in the investment process they excel and where they have room for improvement. 

These differences suggest that there are opportunities for impact investors to learn from one another and collaborate in addressing shared challenges.

Key Learning #3: New and smaller managers can be leaders in impact management

The largest (by AUM) and most experienced (by track record) impact investors aren’t necessarily the best.

This finding is based on a regression analysis of BlueMark’s first 30 verifications designed to see if there was any correlation between investor type and overall alignment to the Impact Principles. The results showed that there are no significant correlations between the size of the firm (i.e., overall AUM), the size of the firm’s impact portfolio (i.e., impact AUM), or that firm’s tenure (i.e., years making impact investments) and that firm’s level of alignment with the Impact Principles.

In our experience, neither being a veteran nor a large impact investor equates to having a more sophisticated impact management system. In fact, the opposite may sometimes be true. Newly formed impact investment firms may have the advantage of not having to conform to a legacy investment management system and can instead focus on developing a best-in-class impact management system from the start. Meanwhile, small or niche impact investment firms may have an advantage in being able to better focus on maximizing the impact of a small number of portfolio companies rather than being spread thin trying to manage dozens or even hundreds of companies.

We will reflect back on these key learnings in future research to see how the impact investing market is developing. In the meantime, read the full ‘Making the Mark’ report for additional key takeaways and data points on how impact investors are approaching impact management.


Christina Leijonhufvud is the CEO of BlueMark, Tideline’s new verification business. She manages all aspects of business strategy, new product development, and external relations, and has directly led 30+ impact verification assignments across investor types and asset classes.