For six decades, IFC has been at the forefront of impact investing in emerging markets. Over the years, others joined us in the search for impact and returns. With the establishment of the Operating Principles for Impact Management, we hope to work with a much broader universe of private investors and development finance institutions to mobilize the trillions of dollars in financing necessary to achieve the Sustainable Development Goals (SDGs).
What is Impact Investing?
Impact investing has emerged as a significant opportunity to mobilize capital into investments that target measurable positive social, economic, or environmental impact alongside financial returns. A growing number of investors are incorporating impact investments into portfolios. Many are adopting the SDGs and other goals as a reference point to illustrate the relationship between their investments and impact.
The question for many investors is how to increase their impact. Despite increased interest and a growing number of product launches claiming to be impact investments, there has been no common discipline for how investors should manage investments for impact and the systems they need to support it. This has created complexity and confusion for investors, including about the differences between impact investing and other forms of responsible investing.
What are the Impact Principles?
To address this challenge, IFC—in consultation with a core group of external stakeholders—developed and launched the Operating Principles for Impact Management in the spring of 2019. These Principles support the development of the impact investing industry by establishing a common discipline around the management of investments for impact.
Impact Investing and the SDGs
The adoption of the SDGs and the launch of the Financing for Development agenda in 2015 has given a strong boost to impact investing. The need to achieve SDGs- which will require $5-7 trillion/year of financing - has changed the conversation around impact from project level impacts, often in small social enterprises, to how to achieve impact at scale.
Specifically, the focus on the SDGs has raised the sights of impact investors beyond project-level impacts towards systemic impacts which can move the needle on the SDGs. At the same time, the Financing for Development Agenda for the SDGs has brought a wider range of fund managers and investors to the table, wanting to ensure that their investments are aligned with the SDGs.
As part of the World Bank Group, IFC has two overarching goals—ending extreme poverty by 2030 and boosting shared prosperity—that are aligned with the SDGs. Through direct investments and advisory services, IFC provides private sector solutions that lay the foundation for sustainable and inclusive economic growth. The objective is to support operations that address development challenges at scale, through project-level outcomes as well as market creation. IFC’s new Anticipated Impact Measurement and Monitoring framework provides: (a) a systematic and rigorous framework to assess the development impact of investment operations ex-ante, and monitor results ex-post, which has strengthened IFC’s ability to select, design, and adjust projects to maximize impact; (b) a structured approach to assess catalytic market effects that fosters IFC’s strategic mandate to Create Markets and support the Billions to Trillions agenda and (c) an effective way to employ a portfolio approach to balance IFC’s double bottom line and generate development impact through financially sustainable operations.
IFC’s results-measurement framework currently comprises mostly sector-level outcome indicators, including Harmonized Indicators for Private Sector Operations (HIPSO) used by multiple development finance institutions to measure, monitor, and report on development outcomes, including those related to the SDGs.