A European investment trade body has proposed a new risk assessment model to allow investors to measure the real-world impacts of their investments more effectively.
The European Venture Philanthropy Association’s (EVPA) research was designed to help corporate social investors protect their “impact integrity” – defined as “safeguarding an organization’s societal mission from negative external influence”.
The new model begins with the awareness stage, which acknowledges that there may often be legitimate reasons for a high degree of dependency or close alignment to a company related to the impact investment in some way.
This alignment can have a knock-on effect on an investor’s impact integrity, the EVPA’s report explained, if it goes against other aims that the investor may have.
During risk assessment, investors should look out for “high risk” that require further evaluation to identify challenges and, if necessary, mitigate risks.
The EVPA’s report showed that one of the best ways of mitigating risks is through transparency = measuring and communicating the impact targeted and the impact achieved, as well as disclosing procedures and processes.
Introducing safeguards through external organizations, such as regulatory authorities and external audits, is also effective in managing corporate influence, the EVPA said.
However, more drastic options for mitigation actions exist. These may include completely separating strategy and operations from the related company, such as operating in different buildings, diversifying funding sources, or separating out communications.
The EVPA’s research follows work by advisory firms White Oak and Global Impact to develop an impact analysis and measurement system for the private debt sector, dubbed the “impact rate of return”.
- Why Linking Opportunity Zones and the Community Reinvestment Act is a Win-Win for Banks, Investors, and Communities
- Cantor Fitzgerald unveils sustainable fund
- BlackRock buys renewables energy provider
- Climate change presents both risk and opportunity
- Harbor Capital Advisors preparing energy transition ETF