Article is an extract from Neil Gregory’s video for the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)
Over the past ten years investors have shown increasing interest that the impact of that investment is no longer enough just to earn a financial return investors want to know how the investments make a difference to the world in terms of environmental and social impacts. You hear a lot of different terms to describe this from the responsible investing, sustainable investing, to impact investing. Now responsible and sustainable investing is really about doing no harm in making sure that you manage environmental while you invest a finance return but some investors want to go beyond that so much the knowledge that fans to have a positive impact on various the following goals such as climate change, finance inclusion, or reducing poverty those are what we call impacts investors.
Other three characteristics that distinguish impact investing from other forms of investing firstly as was said the investor has intends to make both of difference to the world. Secondly they manage the investments to make a contribution to that impact. Thirdly they measure and monitors the impact that that having the style of investing is go to the loft over the past ten years but the still small in the context of overall capital markets somewhere around the trillion dollars a year where is total assets invested globally as around two hundred and sixty trillion dollars a year but based on our research of invest the appetites of interest it impacts. We believe that this approach to investing could grow to at least ten percent of the overall market which would be some twenty six trillion dollars in assets which could make a huge contribution towards financing the sustainable development goals.
So what will it take for this amount to be invested impacts well today confessed is a quite confused about where to put their money to invest the impact because of the events that interest being a huge growth in the number of fans using terms like impacts or sustainable or responsible but it’s not clear to investors how old those fans manage them any differently now as the development finance institution.
I have seen as for over sixty years have a mandate to invest the developments impact as well as financial sustainability and so we are one of the original impacts investors before the term was even invented we have spent many years thinking about how to balance those two objectives of achieving impacts of also financial sustainability based on our experience of the experience of a number of other investors have been investing for impacts we’ve identified the sets of core elements which will impact investors through in common in order to manage that investment portfolios impacts of these elements basically integrates impact considerations along five financial considerations in all of decisions to make an impact in managing an investment portfolio from deciding where to invest the screening and structuring investments so monitoring your portfolio all the way through so exiting from investments with now the still core common elements found into nine principles which we call the operating principles for impact managements on this April 16th investors who manage collectively over three hundred and fifty billion dollars in assets impacts signed on to these principles and committed to follow them in the way they manage their assets this will become over time we believe the markets found that this will affect the silence the principles and provide a clear benchmark for invested interests of achieving impacts but if they invest with institutions like IFC and then found some of asset managers that follow the impacts principles that they know that that fans will be invested a managed to achieve impact as well as financial returns with this increased confidence and credibility in the market we expect continued rapid growth towards trillions of events they over twenty trillion dollars in assets invested for impact the nine principles of invest managing of investment portfolio impacts address the different stages of investment cycles.
So they start with integrating your impact goals into your selection of investments of the design if your investment strategy so that what you choose to invest then affects the goals you trying to achieve For include setting up impact targets before you invest monitoring those targets during the investments of a poll think of those targets after with using commonly accepted metrics importantly they also require the principle that requires that you also it’s a great good environmental social and governance risk management practices because he was first make sure you do no harm before you focus on having a positive impact and then the last principle requires you to make sure that your investment system actually follows these principles in a systematic way about your right to the implement them thoroughly and for this reason the ninth principle requires periodic independent verification a kind of systems all of it to make sure that you actually follow the principles that you have signed up to so a lot of early impact investors focused on the best thing the best thickly we saw this in the United States and then in western Europe but since increased attention has been given to a sustainable development goals impact investors.
So increasingly looking at where they can have the most impact with that fans and we know that the largest financing gaps for keeping the sustainable development goals is then lower middle income countries and so the sustainable development goals is really driving a lot more interest by impacts investors in finding investment opportunities in low and middle income countries and this should be a big focus of impact invest this is being on microfinance and on clean renewable energy but over time they’re looking at a wide range of opportunities which will contribute to financing sustainable development goals.