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AllLife, the only dedicated insurer of people living with HIV/AIDS in South Africa, is accustomed to making the impossible possible. After all, it was created to insure people who previously had no access to affordable life insurance—who were, in fact, viewed as “uninsurable.”

That might not sound like a formula that investors would jump at. But for LeapFrog Investments, which seeks out “purpose-driven businesses [with] real social impact,” AllLife’s goals synced up perfectly with its mission.

LeapFrog Investments’ approach to doing well while doing good has paid off: Since the investor became AllLife’s first backer (LeapFrog’s total investment in AllLife is now $13.9 million), AllLife has more than doubled its annual revenue. The insurer’s outreach to those in need has expanded with a second call center, a larger team, and new products—all while providing quality insurance products to South Africans living with diabetes or HIV/AIDS.

Expanding the Market for Impact Investing

The pursuit of investments that can generate a measurable positive impact on society—while also generating positive returns for the investor—is gaining traction. The market is still relatively small—measured in billions—and dominated by Development Financial Institutions (DFIs) and specialized funds, but it has been growing rapidly since 2013.

© Sayantoni Palchoudhuri/IFC

IFC estimates that investor appetite for impact investment could today be as much as $5 trillion in private markets—private debt, equity, and venture capital—and as much as $21 trillion in public markets, according to the recently launched report Creating Impact—The Promise of Impact Investing.

Such predictions about the growth of impact investing are informed by demographics.  According to Accenture, just in North America, $30 trillion in wealth will be transferred from “Baby Boomers” (people born between 1946 and 1964) during the next three decades.

As financial assets move to the next generation, these younger investors are expected to act on different priorities than their predecessors. They are keenly interested in investments that will benefit society and the environment, and they are willing to put their money to work for these causes.

This is important because development needs around the world carry a significant price tag.  The shortfall in investments needed to meet the UN’s Sustainable Development Goals, for instance, is about $2.5 trillion per year. But there may be a path to achieve this: trends in the impact investing market signal a potentially transformative alignment between key global development objectives and the immediate needs of private investors.

© Dominic Chavez/IFC

Scaling the Market

IFC, one of the oldest and largest impact investors, is acting decisively to shape the impact investing market so this promise can be achieved. In consultation with a core group of external stakeholders—impact asset managers, asset owners, industry associations, and partner DFIs—IFC developed the Operating Principles for Impact Management. These Principles establish a common discipline and market consensus around the management of investments for impact.

IFC sought reviews of the Principles from stakeholders, including investors, companies, academics, civil society and governments, from October to December 2018. As of April 12, 2019, 60 global investors, including LeapFrog Investments, had committed to the Principles—the first widely adopted market standard for impact investing.

The first adopters range from small funds such as MicroVest and Acumen to large banks like UBS and Credit Suisse. The signatories include asset managers like KKR, Partners Group, and Nuveen, and institutional investors such as Prudential and AXA. DFIs like the European Bank for Reconstruction and Development (EBRD) and the CDC Group (owned by the United Kingdom) have also adopted the Principles.

Collectively, these first adopters hold more than $350 billion in assets invested for impact—and they have committed to manage those funds in accordance with the Principles. Future investments for impact will also adhere to the Principles.

IFC is well-positioned to make the business case that will bring in a greater number of investors and expand the market for impact investing. The long-term performance of IFC’s portfolio demonstrates that impact can be achieved in a wide range of developing markets without accepting lower returns. On average, IFC’s realized equity returns from 1988 to 2016 compared well to returns from the MSCI Emerging Market Index.

© Karel Prinsloo/IFC

Institutionalizing Best Practices

The Operating Principles for Impact Management reflect best practices across a range of public and private institutions. They integrate impact considerations into all phases of the investment lifecycle: strategy, origination and structuring, portfolio management, exit, and independent verification.

It's especially notable that the Principles call for annual disclosure of how they have been implemented--and require independent verification. This offers investors additional confidence and enhances the market’s credibility.

View a list of the first adopters of the Operating Principles for Impact Management.

Join the conversation: #IFCimpact | #Investors4Impact

Published in April 2019