At Finance in Motion, tapping the power of finance to achieve positive social and environmental change has always been at the core of what we do. Beneficial impact is not just a by-product of good investments: It is their intention from the very beginning. That means, for us, that we cannot gauge progress toward our goals without having clearly defined methods for targeting, tracking, and demonstrating impact.
It sounds like a tall order – but our experts are on the job!
Sarah Hessel of the Impact & Sustainability team is responsible for impact measuring and management at Finance in Motion. She offers some insight into how she and her colleagues approach this important topic.
First of all, what makes impact management so important for a fund manager like Finance in Motion?
All of the funds that we advise and manage come with their specific impact mission. Working towards these has the same weight as achieving financial targets – and in the end, we are held accountable for our achievements by investors, partners, and investees.
Thorough impact management also allows us to gain insights and learnings to calibrate our strategy and planning, to understand what works and what the needs of our investees are. Ten years of experience has really given us a sense of where we can best direct funding for maximum benefit.
And our track record shows that investees committed to doing good for society or the environment remain successful themselves in the long term.
What role does impact management play in the investment cycle?
It starts with the impact mission of the fund making the investment. There are, for example, minimum requirements for expected impact delivery, or for social/environmental practices at the investee level. This closely informs the due diligence process, where a potential investment is carefully reviewed for alignment with the fund’s impact strategy. This is also when we agree upon reporting measures, and on any tailored technical assistance measures that can help ensure deep, long-term impact.
Once invested, we have an array of tools to ensure we’re on target. For example, if one of our funds invests in a local financial institution, that investee can only use these resources for the agreed-upon impact purpose, and on-lend the funding only to eligible recipients. There might also be portfolio targets, such as increasing the proportion of local currency lending. Technical assistance builds capacity as and where needed. All of this is carefully tracked by our continuous monitoring, which provides us with a constant feedback loop and allows for customized support in case of need.
Speaking of alignment, all of these practices are aligned with the Operating Principles for Impact Management (OPIM). The OPIM are an important industry framework: As the impact investing market grows, the OPIM have defined a common understanding of effective procedures for managing impact. This also offers a unique opportunity for learning and continuous improvement. In fact, we just recently published our OPIM Disclosure Statement. If you’d like to understand our impact management approach and alignment with the Principles in more detail, I highly recommend giving it a read.
How do we know that impact investments are doing their job? What kind of performance indicators do you look for?
Key performance indicators for each mandate are selected based on that fund’s impact mission. Because we work in a complex environment and impact takes place on multiple levels, we focus on both direct and indirect impact. Direct impact, for example, would be generated by an investment that helps a local bank in Colombia build its capacity to finance sustainably operating farmers. The indirect impact of that investment would be the conservation of biodiversity through the implementation of green agricultural practices.
Another important element are international development goals, particularly those of the UN Sustainable Development Goals (SDGs). We have done a detailed mapping of the funds’ activities against SDG targets. This ultimately also allows us to substantiate that contribution through quantitative and qualitative data.
As for finding out how we’re doing: The funds employ quite a comprehensive system to monitor performance targets and gauge final impacts on people and planet. Data is collected from a range of sources, including from the investees themselves, from on-site visits, and from periodic in-depth studies zooming in on the effect the financing has on the final target group. We have developed special software solutions for collecting and analyzing the data of nearly 200 investees across five continents.
All of this is facilitated by our 17 local offices around the world. This proximity to investees allows for continuous dialogue, contributing both qualitative and quantitative impact information.
What is on the impact management team’s agenda for the next year?
The wonderful thing about our work is that the industry is ever evolving and highly dynamic! Of course this results in a very full agenda for us. To zoom in on some of the highlights: We are currently updating our impact scoring tool. As per our usual practices, we are aiming to ensure alignment with industry frameworks, such as the Impact Management Project’s dimensions of impact. We expect this tool to further strengthen systematic impact assessment, including on a portfolio level, and even enhance our alignment with the OPIM. Of course, transparency is key when it comes to scaling the market, which is why we are contributing to a number of industry initiatives around impact management – for example those led by the Global Impact Investing Network (GIIN). Speaking of common definitions, I also expect the EU’s action plan for sustainable finance to keep us busy, as, for example, we are preparing to align with the criteria stipulated in the EU Taxonomy for sustainable finance.
This sounds technical but rewarding. Can you tell us what motivates you personally?
It’s very satisfying work. I have spent a large share of my career working in development collaboration and have seen the positive changes that one can induce, particularly when shifting influential levers – and financial systems are a powerful lever indeed. It is great to watch an understanding emerge among global players of the role (and responsibility!) of the financial sector in addressing the climate crisis in particular, or in protecting biodiversity and ensuring respect for human rights. There is a lot of momentum right now and I’m excited to see where it will lead – and to be able to play a part in that.
You can also hear from Managing Directors Florian Meister and Elvira Lefting on this topic: