By Marina Svistak, Senior Impact Advisor, FinDev Canada
When asked which medal they would like to win after a competition, most people would probably choose gold. Fair enough, but at times, for instance at the beginning of an athlete’s career, it might be better to receive a silver medal because it recognizes achievement while pointing to growth and improvement ahead.
That’s how we at FinDev Canada are looking at an independent analysis just completed that examined our Development Impact Framework. It looked at how closely our policies and practices under the Framework align with the global Operating Principles for Impact Management.
These nine Operating Principles, launched in 2019, are what you might call the “gold standard” for impact investors worldwide. They are a reference point to assess how companies, investment funds, and development finance institutions track the development impact and social and environmental risks of their investments alongside financial returns. As described, “the Principles instill a discipline around impact investing, fostering greater mobilization of capital for impact, and a high standard for the social and environmental impact that it can achieve.”
FinDev Canada was among the first signatories to the Principles. So far, more than 125 other global impact investors have also signed on. Together, this represents more than US$ 375 billion in assets under management dedicated to impact investments.
Last year, we published the first annually required Disclosure Statement of how our impact performance management aligns with the Principles. We’ve now just published this year’s annual statement.
That is how we see ourselves when we look in the impact assessment mirror. The ninth Principle, however, also requires each signatory organization to “provide regular independent verification of the alignment of its impact management systems with the Principles”. We asked BlueMark, a Tideline company, to carry out that analysis for us. BlueMark is a leading provider of impact verification services in the global impact investing market.
We knew that this external review would bring insights and recommendations to keep improving our impact assessment process. As a young development finance institution, we are committed to developing and utilizing robust impact management practices. This would be the first external evaluation of our approach.
The BlueMark report, which you can see here, had a lot of good news. Overall, it validated what we’ve done over the last few years to develop FinDev Canada’s impact strategy, plus the tools and resources to support its implementation, and made valuable suggestions for further enhancements
A more detailed look
BlueMark found that our impact assessment process adheres well to almost all of the nine global Principles. When it comes to Principle #2 (Manage strategic impact on a portfolio basis) and Principle #5 (Assess, address, monitor, and manage potential negative impacts of each investment), FinDev Canada’s policies and practices were categorized as being in “advanced” alignment, meaning that there is “limited need for enhancement.”
For Principles #1 (Define strategic impact objective(s), consistent with the investment strategy), #3 (Establish the manager's contribution to the achievement of impact), #4 (Assess the expected impact of each investment based on a systematic approach), and #6 (Monitor the progress of each investment in achieving impact against expectations and respond appropriately), BlueMark found that FinDev Canada’s alignment was “high”, meaning there are “a few opportunities for enhancement.”
The external review did not shy away from spotlighting areas of improvement, some already on our radar for this year and others that we will be incorporating over the next few years. For example, when it comes to Principle #7 (Conduct exits considering the effect on sustained impact), we were rated as “low” in alignment. This is not a surprise given that we have not yet exited any projects in which we have invested. BlueMark recognized this, noting that “in time, FinDev Canada could consider developing a framework and process for evaluating exit decisions for various product types against related impact factors.” Which we will do.
Finally, for Principle #8 (Review, document, and improve decisions and processes based on the achievement of impact and lessons learned), we received a “moderate” rating, indicating several opportunities for enhancement. This is largely because we have been carrying out impact assessment knowledge-sharing informally within FinDev Canada. It has worked for us as a relatively small organization but, as we grow, we know that we will require a more consistent process incorporating all the relevant stakeholders on a timely basis.
A key aspect of the Principles is the commitment to transparency so anyone can see how a signatory is faring compared to others and learn about best practices globally. In that regard, you could say that we’ve been awarded a silver medal for the way we think about, plan, and implement the impact assessments of our investments. This is a welcome recognition and we are very proud of it. With the good suggestions for improvement, however, we also have a renewed incentive to go for the gold.