Just one in ten impact investors engage with stakeholders to understand impact - BlueMark

Almost all impact investors work towards the UN Sustainable Development Goals – but less than half focus on the detailed targets underlying the SDGs, according to a report published yesterday by impact verification provider BlueMark. It also finds that just 11% engage with communities, customers, workers and other stakeholders to understand their impact. 

The report draws on BlueMark data on 30 investors with a combined $99bn in impact assets under management, including major development finance institutions and impact funds such as Big Society Capital, CDC Group, the European Bank for Reconstruction and Development and Leapfrog Investments.

It found that while 93% of investors aligned their objectives with one or more of the 17 SDGs, only 48% actually aimed to achieve the 169 specific targets underlying the SDGs.

“I think it has a lot to do with the level of maturity of the market,” Christina Leijonhufvud, CEO of BlueMark and lead author of the report, told Pioneers Post, noting that the term ‘impact investing’ was only coined in 2007. 

Despite considerable growth in the sector over the past decade, impact investors were still struggling to set their targets in certain areas, she said. “Setting impact expectations and targets is a very complex exercise.” The fact that the market was dynamic and constantly evolving made it difficult for funds to keep up, even with the best intentions, she added.

• Read: $500m deal between Leapfrog and Temasek marks ‘new level of scale’ for global impact investing

Stakeholder engagement: costly exercise

While 93% of investors assessed their expected impact performance, and 57% compared actual performance with expectations, only 11% engaged with stakeholders (communities, customers, workers and other stakeholders affected by investments) to understand their impact, the report found.

“When it comes to stakeholder inclusion and engagement, even if it seems, intuitively, like that should be a core part of the impact management measurement system, it is not easy for investors to figure out how to do that cost-effectively,” said Leijonhufvud.

“It's a costly exercise that requires getting out there on the ground, and really figuring out how to capture the voice of local communities and beneficiaries in a way that is effective. We don't have ready practical tools for that yet. But I think it's coming.”

Setting impact expectations and targets is a very complex exercise

The report also finds room for improvement among impact investors in terms of exit strategy – or how to make sure their impact is sustained after they withdraw investment. While 57% consider the sustainability of impact at and beyond exit, only 17% identify potential actions to ensure impact is sustained.

Benchmarking best practice

BlueMark was established in 2020, and is an independent subsidiary of Tideline, a women-owned advisory firm in impact investing.

Its impact verification process lasts four to five weeks and includes documentation reviews as well as interviews with staff. Outcomes are evaluated against the Operating Principles for Impact Management – which were devised in 2019 as a framework for impact investors, and whose 129 signatories include BlackRock, the world's largest asset manager. 

Based on the data from its first 30 verifications outlined in the report, BlueMark has created a benchmark for best practice in impact management, identifying three categories of players (leading, median and learning), to enable investors to understand where they stand compared to others in the market. Data in the report is anonymised.

There's a lot of work that needs to be done on performance reporting

This report comes among increasing scrutiny of ESG investors – the broader field of environmental, social and governance investing – by regulators. In March, the European Union launched its Sustainable Finance Disclosure Regulation, aiming to prevent greenwashing and ensure comparability and transparency of sustainability information in financial markets.

Last month, the Securities and Exchange Commission (SEC), the US financial markets regulator, issued a risk alert on ESG investing. The “rapid growth in demand [for ESG investment], increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks,” the paper said. 

SEC commissioner Hester M. Peirce said in a statement: “Firms claiming to be conducting ESG investing need to explain to investors what they mean by ESG and they need to do what they say they are doing. This same rule applies no matter what label an adviser puts on its products and services.”

Leijonhufvud welcomed the moves, saying they made independent verification all the more relevant both in ESG and in impact investing. “There's a lot of work that needs to be done on performance reporting.”

Top picture credit: UN Ukraine

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