Impact investors will not need to have their impact performance data externally verified by auditors in the way that financial data is audited, predicted Hanna Ideström, senior portfolio manager at the Fourth Swedish National Pension Fund (AP4).
Ideström was speaking on a panel on the value of external verification, or assurance, of impact KPIs at PEI Media’s Impact Investor Global Summit in London last week. She was joined by Luyen Tran, chief development impact officer at the UN’s International Finance Corporation. AP4 and IFC are both repeat investors in funds in New Private Markets’ Impact 20: AP4 in Generation Investment Management’s third Sustainable Solutions fund, Meridiam’s Africa infrastructure fund and Trill Impact’s first fund, and IFC in Apis’s second fund and Leapfrog’s third emerging consumer fund.
“Assurance helps us define the market so we can start figuring out where our capital is best invested,” said Tran. “The role of assurance is to define the different types of impact investors: are you an intended impact investor, or a measured impact investor, or are you doing this because you want to put a different veneer on your activities [which] may not necessarily be impactful?
“For us, [external verification] is quite important. When we look at funds, if there is an assertion that it is an impact fund, we look at the track record to see the amount of impact that that fund has been able to deliver. That has a bearing on how we score that investment for impact.”
But external verification is less important for AP4’s impact fund investments, said Ideström: “We will continue to put money [into impact funds] even in the absence of perfect KPIs and perfect verification of it.” She noted that while there is a risk that impact fund managers may not deliver their stated impact goals without external verification, “I do think it’s important not to lose sight of what is important, and in our case that is to put as much capital as possible to contribute to the climate transition.”
AP4 takes a principles-based approach to impact investing, which Ideström described as developing hypotheses of the highest-emitting sectors and technologies that can reduce those emissions. “The hypothesis will have to be good enough at the moment, if there is clear indication that it is helping,” said Ideström.
IFC has had its own impact measurements externally verified “for at least a decade”, said Tran. “To me, a principles-based approach is quite inconsequential.”
Closing the panel, Ideström said: “I don’t think [external impact verification] will be here to stay.”