ANNOUNCEMENT – “BlueMark Introduces Leaderboard of Impact Investors With the Strongest Impact Management Practices”
Leaderboard and expanded data set on best practices in impact management released as part of BlueMark’s third annual ‘Making the Mark’ report
BlueMark, an impact verification specialist, today published its third annual report on best practices and trends in impact management featuring data and insights gleaned from the firm’s verifications of investor impact management practices. BlueMark’s methodology is grounded in the Operating Principles for Impact Management (“Impact Principles”), a leading market standard for impact management practices. The full report — “Making the Mark: Spotlighting Leadership in Impact Management” — is available at www.bluemarktideline.com/making-the-mark-2022.
The analysis is based on 60 verifications for impact investors managing a combined $160 billion in impact assets under management. This is double the sample size of last year’s edition of “Making the Mark,” which was based on 30 verifications for investors managing a combined $99 billion in impact AUM. The larger sample size reflects the growing demand for impact verification and brings additional clarity into trends and challenges across the market.
“We continue to see healthy competition among impact investors seeking to demonstrate best practices in impact management and learn valuable lessons from their peers,” said Christina Leijonhufvud, CEO of BlueMark. “BlueMark’s verification approach and dissemination of aggregated findings and benchmarks are designed to facilitate a race to the top by encouraging impact investors to adopt industry best practices and address shared challenges.”
New features in this year’s ‘Making the Mark’ report include:
- Introduction of the BlueMark Practice Leaderboard, which highlights the five BlueMark clients that scored in the top quartile against eight of the nine core features of robust impact management as reflected in the Impact Principles (the ninth Principle–independent verification–is not scored). The inaugural edition of the Leaderboard features Bain Capital Double Impact, Finance in Motion, LeapFrog Investments, Nuveen Private Equity Global Impact, and Trill Impact.
- An updated BlueMark Practice Benchmark, which shows the distribution of investor impact management practices by quartile, and an expanded Dashboard of Practice Indicators, which provides a tool for investors to assess their own practices against a peer set. This year’s Dashboard features additional data points on leading practices, such as the use of the IMP’s ABC framework (Avoid, Benefit, Contribute) to determine impact objectives (8% of verified investors) and the use of a composite scoring methodology to evaluate portfolio performance (28% of verified investors).
- Overview of the current state of the impact verification market based on analysis of the 100 signatories to the Impact Principles that have completed an independent verification as of May 2022. BlueMark was responsible for 41% of all third-party verifications (excluding internal verifications) for signatories to the Impact Principles, more than four times as many as the next closest verification provider.
- Case studies highlighting unique or innovative impact management practices, featuring Trill Impact (aligning staff incentives to impact achievement, a component of Principle 2), MedAccess (assessing investor contribution, a component of Principle 3), Lightrock (assessing impact risks and negative impacts, a feature of Principle 4), Finance in Motion (incorporating the voice of stakeholders, related to Principle 6), and British International Investment (assessing the sustainability of impact at exit, Principle 7).
BlueMark’s analysis also revealed several interesting trends across the impact investing industry.
- Despite growing discussion about impact-linked compensation structures, the practice remains limited. Only 38% of impact management systems explicitly integrate impact considerations into staff incentives, with performance development and review processes identified as the most common method (25% of verified investors). Meanwhile, more direct financial accountability mechanisms — such as annual bonuses or impact-linked carry — are less common at 17% and 3% adoption, respectively.
- Impact investors are aligning around a handful of measurement frameworks. A majority of impact investors (77%) have adopted industry frameworks and/or taxonomies for selecting their impact metrics, with IRIS+ emerging as the most common framework followed by HIPSO and an array of ESG reporting standards. Similarly, when it comes to ESG management, 78% of verified investors have adopted an industry standard or framework to inform their approach, led by the IFC Performance Standards (43%) and SASB (25%).
- Investors vary significantly in their establishment of ex-ante impact targets, compromising the market’s ability to gauge success. While 63% of impact investors monitor impact performance against an expectation — such as a baseline KPI or qualitative impact rating — the quality of target-setting practices varies widely. For instance, only 22% of verified investors have a clear protocol for engaging investees in the event of impact performance, partly due to the lack of clarity on what over- or under-achievement looks like from an impact perspective.
- An increasing number of impact investors are engaging with key stakeholders and actively solicit their input. Less than a third of impact investors (28%) engage with key affected stakeholders and actively solicit their input, an increase of 17 percentage points compared to last year’s research sample. While still a minority practice, the commitment to solicit input from target stakeholders experiencing the impact outcomes is a key part of impact management and monitoring.
“These findings corroborate what we’ve observed across the impact investing industry and in previously published research,” said Leijonhufvud. “While there are several encouraging signs of improvement in impact management practices, many impact investors still have a long way to go if they want to be seen as market leaders.”
BlueMark’s current verification services are structured around the two key pillars of accountability for impact: Impact Management Practice (the extent to which an investor or company has the systems, processes, and capabilities to contribute to achieving the intended impact); and Impact Performance (the extent to which an investor or company has achieved the intended impact results). To date, BlueMark has completed 75 verifications for organizations managing a combined $164+ billion in impact assets.
BlueMark is a leading provider of impact verification services for investors and companies. Founded in 2020, BlueMark’s mission is to “strengthen trust in impact investing.” BlueMark’s verification methodologies draw on a range of industry standards, frameworks and regulations, including the Impact Management Project (IMP), the Operating Principles for Impact Management (OPIM), the Principles for Responsible Investment (PRI), SDG Impact, and the Sustainable Finance Disclosure Regulation (SFDR). Learn more about BlueMark and impact verification at www.bluemarktideline.com.
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.