The impact investment market is now valued at more than $1 trillion, and it is growing fast. This rapid growth fuels both hope and responsibility – hope that managers and investors can use their capital to drive meaningful and positive change; responsibility to make sure they do. A recent webinar hosted by Snowball and The Good Economy assessed how accountability could help the impact investment industry to expand, develop and fulfil its potential.

The impact investment market is poised to play an increasing role in the responsible investment universe, delivering financial returns while generating tangible, meaningful and sustained change worldwide. But the industry faces challenges, too, as participants strive to counter accusations of impact-washing and prove that they are directing capital towards companies and organisations that really do make a difference. Against this backdrop, our webinar focused on accountability in the impact space, posing two central questions: why accountability matters and how best to achieve it.

Why accountability matters

Impact funds have proliferated in recent years, but as assets under management have grown, so too have concerns about impact-washing. This has three major consequences. It threatens to reduce funds’ real-world impact. It undermines confidence and trust in the industry. Ultimately, it affects prospects and growth.

Holding managers and investors to account can address these issues at source, refuting accusations of impact-washing and ensuring that claims stand up to scrutiny. Accountability can also help the industry to determine what good looks like and how best to deliver it. Over time, therefore, accountability can foster positive environmental and social change, the cornerstones of impact investing.

What’s the point of third-party endorsement?

Across the impact investment industry, efforts are underway to create global standards and clarify definitions of best practice. Today, however, this is still a work in progress. In such an environment, accountability is best achieved through independent, third-party verification.

Marking your own homework will only go so far, and it is just not an option for managers and investors striving to prove their integrity.

Independent verification or assurance embraces two key aspects of impact management – processes and practice on the one hand; performance and outcomes on the other. Both have a critical role to play, helping managers to see what they are doing right, where they can improve and how best to do so.

Transparency holds the key

Verification reports will only go so far, however, unless they are accompanied by a commitment to transparency. To date, we believe that, while independent reports are becoming more widespread, Snowball is the only impact investment manager to make the findings from its report public. Yet, as our webinar made clear, investors are best equipped to make informed choices about where to put their funds if managers are prepared to show how they operate and the results of their endeavours. Then investors can see how their capital is being used, whether it is driving positive change and whether managers are truly investing for impact. The process does not just help investors. Asset managers are also incentivised to seek continuous improvement in practices, processes and performance. And transparency fosters an environment where best practice can be shared, thereby raising standards across the industry.

Boots on the ground, not just eyes on the screen

Processes, practices and systems are crucial building blocks for impact investment, but, as our panellists all agreed, managers can never lose sight of their principal goal – to direct capital towards enterprises delivering positive change in the world. Simply put, performance is paramount. And performance is best assessed from both the top down, via data, and the bottom up, by engaging with stakeholders on the ground – the direct or indirect beneficiaries of impact funding. Some of the most advanced managers do this as a matter of course, and others are working out how best to do it. Our panel considered this issue, airing ideas like information-sharing and manager forums. One way or another, stakeholder input is essential – to see what works, to see what doesn’t and to ensure that money is put to good use.

An evolving industry

Impact investment is evolving, but there is still a long way to go. Today, according to research, investors are increasingly willing to pay for investments that generate impact. However, they show little interest in how much impact their investments deliver. Our panellists believe this is a serious red flag, which may, over time, encourage bad actors to indulge in impact-washing to the detriment of the industry and those it is striving to help. Genuine accountability is one way to ensure that investors better understand where their capital is going and the real-world impact it is having. Genuine accountability, therefore, should direct capital to the investment managers who are most committed to the impact cause and best equipped to drive positive change.

As the industry develops, even more care will be needed to ensure that managers are held accountable and can be trusted. For our panel discussed, that raises a further question: Who verifies the verifiers? Today, bodies, such as the Operating Principles for Impact Management, advocate independent verification, but an accreditation system or set of standards may need to be put in place to ensure that verifiers are properly equipped to do their job. Initiatives are underway, our panellists noted, and over time, action may be necessary.

Key takeaways:

• Impact investment managers need to be held to account to ensure their claims stand up to scrutiny.
• Accountability is best achieved by independent, third-party verifiers.
• Investors and other stakeholders can only really gauge managers’ progress if they are transparent about verifiers’ findings.
• Transparency among investment managers fosters best practice.
• Transparency and accountability can therefore improve processes, enhance performance and deliver better outcomes for all stakeholders.

The webinar was chaired by Sarah Forster, CEO of the Good Economy.

Our four panellists were:

• Jake Levy, Investment Manager, Snowball
• Sasha Zoueva, Director of Strategic Learning and Impact, Rockefeller Foundation
• Matt Ripley, Lead, Impact Assured, The Good Economy
• Oyin Oduya, Leader, Impact Measurement and Management Practice, Wellington Management

Watch the recording of the webinar below:

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