In 2020, the Global Impact Investing Network (GIIN) estimated that impact investing assets totaled $715 billion. This far exceeded growth projections published by the World Economic Forum in 2013, when impact-related assets had reached an estimated $25 billion. Such explosive growth has encouraged the record issuance of $859 billion worth of impact bonds in 2021, according to data published by BNY Mellon.
Yet with rising demand and interest comes increased scrutiny. Much like ESG certification efforts to curtail greenwashing, impact verification services target impact washing, or improperly reporting an investment’s social or environmental impacts. For investors, these impact verifiers offer a greater sense of confidence that their money will help achieve true impact.
Investing in Impact Verification
As concerns over the veracity of reported outcomes have escalated, four of the biggest names in impact investing—the Ford Foundation, Radicle Impact, the Rockefeller Foundation, and the Tipping Point Fund on Impact Investing—underscored the importance of robust and transparent measurement practices by investing $3.75 million earlier this year in BlueMark, an independent impact verification service provider.
With the deal, BlueMark intends to further its mission of strengthening trust in impact investing, including expanding the reach of its BlueMark Practice Benchmark.
Serving a Market Need
The impact investment universe stands out from the world’s financial markets by intentionally channeling capital into a variety of investment vehicles that offer a range of returns in tandem with measurable social and environmental achievements and outcomes.
Given the double-edged mandate, impact measurement and management have long been points of emphasis for impact investors. It’s also a considerable concern going forward, as 66% of survey respondents identified impact washing as their most prevalent challenge for the next five years in the Global Impact Investing Network’s Annual Impact Investor Survey 2020.
Such urgency has supported a broad range of standards, including:
- The Operating Principles for Impact Management’s nine Impact Principles
- The SDG Impact Standards, which are based on the United Nations Sustainable Development Goals
- GIIN’s COMPASS methodology, an extension of its original Impact Investing Benchmark
- The International Finance Corporations’ Joint Impact Indicators
“With this massive movement of mainstream capital towards impact investing, there are risks of impact washing and that arises from still a lack of labeling standards,” BlueMark CEO Christina Leijonhufvud said in a January 2021 podcast. “Nobody actually owns the impact label. So the market has to police the use of the label itself.”
Learning Lessons from ESG
As is the case with the current mosaic of ESG certification programs and company verification services, disparate impact verification programs run the risk of diluting the impact validation pool. That could lead to questions about a program’s true impact from investors and wary outsiders, fostering frustration among compliant issuers.
In an effort to head off such complications, the Impact Management Project spent five years facilitating conversations between leading impact investors and developed the Impact Management Platform, which it launched in 2021. According to the platform’s website, it supports impact management efforts by showing leaders ways to:
- Clarify the meaning and practice of impact management
- Work toward interoperability—and fill gaps as needed
- Have coordinated dialogue, as appropriate, with policymakers
Whether the Impact Management Platform endures or another emerges as the industry standard, the value of impact verification will only solidify as impact investing continues to attract a growing share of the world’s investible assets. Impact investors, too, want to make sure they are making an impact when committing their money. Impact verification services can help make this so.