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

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.

ChartDescription automatically generated

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.

A video recording of “How to Be an Impact Leader” (WATCH)

A video recording of “How to Be an Impact Leader” (WATCH)

On May 13, 2021, BlueMark hosted an event on “How to Be an Impact Leader” to introduce key findings from the firm’s latest report: Making the Mark: The Benchmark for Impact Investing Practice.

 

Using data and insights from an initial 30 verifications, BlueMark’s second annual ‘Making the Mark’ report offers an in-depth look at best practices in impact management. And in a first for the impact investing market, the report also introduces a new industry benchmark that is designed to allow market participants to clearly differentiate between impact investing leaders and learners, thereby bringing more transparency and accountability to the impact investment market.

Attendees had an opportunity to hear first-hand from several of BlueMark’s clients that have gone through the verification process to learn how a third-party perspective helped them improve their approach to impact management. The event also featured experts in impact investing discussing the importance of benchmarking and how a shared understanding of opportunities and challenges can advance the field.

Speakers included:

  • Christina Leijonhufvud | CEO, BlueMark
  • Tomi Amosun | Managing Partner, Summit Africa
  • Elizabeth Boggs-Davidsen | Vice President, Office of Development Policy, U.S. International Development Finance Corporation
  • Cecilia Chao | Managing Director, Bain Capital Double Impact
  • Maria Kozloski | Senior Vice President, Innovative Finance, The Rockefeller Foundation
  • Jeremy Rogers | Chief Investment Officer, Big Society Capital

Download the full ‘Making the Mark’ report at
https://bluemarktideline.com/making-the-mark-2021/

ANNOUNCEMENT – “BlueMark Launches First-of-its-Kind Benchmark for Best Practices in Impact Management”

ANNOUNCEMENT – “BlueMark Launches First-of-its-Kind Benchmark for Best Practices in Impact Management”

BlueMark Launches First-of-its-Kind Benchmark for Best Practices in Impact Management

New tool designed for financial market participants looking to differentiate between impact leaders and impact learners

Benchmark based on 30 impact verifications of investor alignment with the Operating Principles for Impact Management, as highlighted in BlueMark’s second annual “Making the Mark” report

 

MAY 10, 2021 — BlueMark, a leading provider of independent impact verification services for investors and companies, announced the creation of a first-of its-kind benchmark for tracking best practices in impact management. Designed to root out impact-washing, BlueMark’s benchmark allows market participants to readily differentiate between impact leaders and learners.

The benchmark is based on aggregated data and insights from 30 impact verifications for investors with a combined $99 billion in impact assets under management on their alignment with the Operating Principles for Impact Management (“Impact Principles”), the leading market standard for impact management practices. Each BlueMark impact verification involves conducting multiple interviews with client teams and reviewing hundreds of pages of investment policies, transaction documents, data, and reports. The full report, “Making the Mark: The Benchmark for Impact Investing Practice,” which was developed with support from The Rockefeller Foundation, is available at https://bluemarktideline.com/making-the-mark-2021.

The benchmark includes three distinct categories that define the practices of leading, median and learning impact investors, providing a dynamic understanding of what it means to rigorously manage for impact. While the research sample analyzed by BlueMark reflects impact investors that have committed to pursue alignment with the Impact Principles, thereby embracing industry best practices, there are still revealing differences in how different investors approach impact management.

  • Practice Leaders – Practice Leaders are in the top quartile of the 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 best practices. They are also committed to further learning and improvement that helps to continually advance the bar for best practice.
  • Practice Median – The Practice Median reflects the impact management practices of the median impact investor in the research 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 the sample (25th percentile and below). These investors have well-articulated impact intentions, but they lack some of the core impact management practices needed 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.

“The idea of a benchmark is essential to the continued institutionalization and maturation of the impact investing market,” said Christina Leijonhufvud, CEO of BlueMark and lead author of the report. “By establishing a shared consensus on best practices in impact management, we have created a valuable tool that we hope market participants can use to improve their own practices and to see where they stand against their peers.”

The 30 impact verifications cover a broad range of investor types and asset classes and highlight key opportunities and challenges for practitioners. Key findings include:

  • Growing consensus around the SDGs. 93% of impact investors in the sample align their investments with the Sustainable Development Goals (SDGs), and 48% specifically align with the 169 targets underlying the SDGs
  • Alignment of incentives with impact still in early stages. 43% directly align staff incentive systems with impact performance, including 17% that tie annual bonuses to impact and 3% that tie carry to impact
  • More effort needed to systematically avoid harm. 90% identify select ESG risks in their investment decisions, but only 43% systematically engage investees to address ESG gaps and unexpected risks
  • Impact performance needs to be more inclusive of stakeholders. 57% compare actual with expected impact performance, yet just 11% solicit input from key stakeholders to understand their impact performance
  • Impact management is a continuously iterative process. 32% monitor and review unexpected positive and negative impacts, and 30% use learnings from impact performance reviews to improve investment decisions and portfolio management

“For impact investing to have the power it can, the world and investors need to be able to see and measure impact—transparency is central to its integrity,” said Dr. Rajiv J. Shah, President of The Rockefeller Foundation, one of the founding investors in BlueMark. “Impact verification will help us hold investors accountable for both their claims and their practices.”

BlueMark will continue to update the Practice Benchmark as the firm completes additional verifications. BlueMark is also working on developing a similar benchmark for measuring and tracking impact performance.

The impact investing organizations that have had their impact management systems verified by BlueMark include: Bain Capital Double Impact, Big Society Capital, BlueOrchard Finance, Calvert Impact Capital, CDC Group, Community Investment Management, Closed Loop Partners, DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, European Bank for Reconstruction and Development (EBRD), EDFI Management Company (EDFI-MC), FinDev Canada, Finnish Fund for Industrial Cooperation (Finnfund), Franklin Templeton Social Infrastructure Fund, FullCycle Management, Investment Fund for Developing Countries (IFU), Kohlberg Kravis Roberts & Co. (KKR), LeapFrog Investments, LGT Venture Philanthropy Foundation, Nuveen, Partners Group, PG Impact Investments, Prudential Financial (Impact & Responsible Investing), Quona Capital Management, The Osiris Group, UBS Group, and Women’s World Banking Asset Management.

BlueMark will host a virtual event on “How To Be An Impact Leader” on May 13, 2021 featuring: Tomi Amosun, Managing Partner at Summit Africa; Elizabeth Boggs-Davidsen, Vice President of the Office of Development Policy at the U.S. Development Finance Corporation (USDFC); Cecilia Chao, Managing Director for Bain Capital’s Double Impact team; Maria Kozloski, Senior Vice President of Innovative Finance at The Rockefeller Foundation; and Jeremy Rogers, Chief Investment Officer for Big Society Capital. Please register at https://us02web.zoom.us/webinar/register/WN_1tJXz6l5RRWyyx8FsiEM5w.

 

About BlueMark

BlueMark is a leading provider of impact verification with a mission to strengthen trust in impact investing and to increase accountability for impact. BlueMark is an independent subsidiary of Tideline, a certified women-owned advisory firm in impact investing. Learn more at www.BlueMarkTideline.com.

About Tideline

Tideline, a majority women-owned impact investing consultancy, provides expert, tailored and actionable advice to clients developing impact investment strategies, products and solutions. Learn more at www.Tideline.com.

About The Rockefeller Foundation

The Rockefeller Foundation advances new frontiers of science, data, and innovation to solve global challenges related to health, food, power, and economic mobility. As a science-driven philanthropy focused on building collaborative relationships with partners and grantees, The Rockefeller Foundation seeks to inspire and foster large-scale human impact that promotes the well-being of humanity throughout the world by identifying and accelerating breakthrough solutions, ideas, and conversations. For more information, sign up for our newsletter at rockefellerfoundation.org and follow us on Twitter @RockefellerFdn.

 

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