Early last year, Big Society Capital became a signatory to the Operating Principles for Impact Management – a common market framework for best practice in impact management, adopted by 120 impact investors. The Principles set out how impact considerations ought to be embedded along the entire investment life cycle, from strategy and setting impact goals to exiting an investment and ensuring that lessons learnt are considered for future investments and ongoing portfolio management decisions.
A year later, we are pleased to publish our first Disclosure Statement, which provides an overview of our impact management systems and processes, and alignment with the 9 Principles, as well as the Independent Verification Report provided by BlueMark, who conducted the independent verification of our impact management system.
In this blog, we share why we think the Principles are an important initiative worthwhile joining; what we have learnt from the disclosure and verification process; and what comes next.
Why are the Operating Principles for Impact Management important?
We joined the Principles because we know from our own experience how important good impact management practices are to ultimately deliver on an impact investor’s impact goals. The same is true for the impact investing industry more broadly. To ensure that increased inflow of capital translates into real progress against the Sustainable Development Goals, we need a shared understanding and commitment to what good impact practice constitutes.
The Principles provide the opportunity of bringing greater clarity and discipline to the impact investing market, while driving greater integrity and transparency around impact practice. The latter is underpinned by Principle 9, mandating Signatories to publish an annual disclosure statement of their alignment with the Principles and to go through regular independent verification of their impact systems.
In the spirit of transparency, we have decided to go beyond what is required and publish our verification statement that includes BlueMark’s assessment of the degree to which we align with the respective Principles, as well as their suggestions for improvements.
What have we learnt – and how we intend to improve
Given our mandate and mission, embedding impact in our investment process and broader market building work has always been a priority for us. Nevertheless, going through the disclosure and verification process has been helpful in bringing together and organising the various components of our impact management approach against a shared market framework.
This allowed us to better understand the strengths and weaknesses of our systems and processes, as well as identify areas for further improvements.
We have been pleased with the verification findings that consider our approach to defining and managing strategic impact intent across our portfolio, establishing investor contribution, our participatory way of setting impact metrics through our Impact Canvas tool, and monitoring impact performance as “advanced” against these four Principles.
Equally, we appreciate the specific opportunities flagged by BlueMark to further improve our impact approach and alignment with the Principles. These include our approach to ESG risks, monitoring identified impact risks and mitigations throughout the investment process, and more systemically capturing broader unintended impacts (positive and negative) as part of our broader learning approach.
Through the standardisation, introduced through the Principles, we are also able to increasingly compare our impact management approach and learn from other leading impact investors. Building on these benefits, we have started to use the Principles as a shared foundation for working with some of our own prospective and existing fund managers and intermediaries on collaboratively assessing and improving their impact management practices.
Finally, with a clear focus on learning, we have also been able to use the verification process as an opportunity to seek insights and recommendations for improvements from BlueMark beyond the letter of the Principles. These recommendations are equally included in the verification statement. As a result of this, we will continue developing our systems change approach at an organisational level and more systematically capture and articulate our investor contribution.
Over the next year, we will work on a number of improvements to our impact management approach, outlined in our Disclosure Statement. A systematic update on progress made will be provided in our next Disclosure Statement, in a year from now. However, in the spirit of learning, we intend to also share further details on specific elements of our impact approach over the course of the coming year. This will likely include an update on our approach to systems change, as well as specific impact tools, such as our Impact Canvas.