Building Impact Credibility: Fund-Level Verification for Asian Impact Investors

This episode takes listeners through the evolving landscape of impact measurement and management (IMM) in Asia, highlighting the need for standardized impact metrics to foster credibility and confidence among investors  and developing impactful investment strategies in Asia.
 
Our guest, Christina Leijonhufvud, CEO of BlueMark, will discuss how BlueMark’s work—particularly their Fund ID service, which was piloted with 37 leading sustainable and impact funds this summer—is enhancing accountability through fund-level impact ratings.

Transcript

SPEAKER_03 0:00

One of the biggest challenges we hear about is around the risk of impact washing. It really all starts with how you're articulating your impact strategy and making sure that you can really back up your theory of change.

SPEAKER_00 0:17

Welcome everyone to Impact Investing Music, a podcast series where we delve into the ever-evolving world of impact investing and aim to connect, educate, and share knowledge to drive capital towards impact. I'm Vicasa Rora, Chief of Impact Investing at AVPN.

SPEAKER_01 0:34

And I'm Jackie, your host. When it comes to impact, how do you know if you're truly making a measurable difference? In this episode, I discuss with Christina Leon Hoover, CEO of Blue Mark, on the ever-evolving landscape of impact measurement and management in Asia. Let's dive in.

SPEAKER_02 0:52

Christina, so lovely to have you join us.

SPEAKER_03 0:55

Thank you, Jackie. It's great to be here.

SPEAKER_02 0:57

Amazing. Well, maybe for those that are not yet familiar with the great work you're doing, would you like to just kind of introduce yourself and the work you're doing at Blue Mark?

SPEAKER_03 1:05

Sure, absolutely. So I'm Christina Leonhrovid, and I'm the CEO of a firm called Blue Mark. Blue Mark is five years old as of now and is the leading provider of independent verification and market intelligence for the impact investing and sustainable investing market. Blue Mark is a spin-out of another company that I co-founded called Tideline, a strategy consulting firm in this market. And my business partners and I saw the need for a trusted source of independent verification data and benchmarks as the market continued to grow and mainstream and concerns around impact washing grew with it.

SPEAKER_02 1:46

Maybe that's a great place to start, just to give us a little bit of an overview of what is impact measurement and management, what does that landscape look like, especially here in Asia?

SPEAKER_03 1:55

Yeah, absolutely. Well, before I launch into the IMM landscape in Asia, I think it would be helpful to look at the IMM landscape globally from our perspective at Blue Mark. One of the most exciting developments in the market in recent years has been the emergence and adoption of more formal impact measurement and management standards and tools. And we now are at a stage in the market where I would say we have a number of frameworks and tools that are readily readily available for investors to adopt who want to invest for impact. And those are tools like, of course, for measuring impact IRIS Plus that the Global Impact Investing Network puts out to market, the impact reporting standards. For managing impact, we have frameworks like the operating principles for impact management, SDG impact. So clarity on what impact measurement frameworks to use and harmonization of impact measurement frameworks were some of the key areas of challenges in the market just a few years ago. I think we've made tremendous progress in addressing those challenges as a market. And the next frontier of IMM is really about how to report and report on and value impact. And we now see more and more kind of work around standards and frameworks to align the market around reporting norms. Impact frontiers is put out a set of impact performance reporting norms. We have the Global Impact Investing Network providing impact performance benchmarks. And then we have various groups working on impact accounting and how to value impact. So it's not that we're done in terms of establishing the what is best practice IMM. It's constantly evolving and the standards are continuing to, I think, raise the bar on best practice. But the good news for investors in Asia is that there are these existing tools and frameworks to adopt and build on. And indeed, we really see that happening in the market. Blue Mark recently conducted an analysis of how Asian investors are comparing to sort of the global median in our database based on our verifications of investors' IMM systems. And we published that research every year in an annual report called Making the Mark. And we found that Asia-based impact investors are overall a little bit less aligned with market best practices, particularly when it comes to some of the foundational impact management practices, like how to set impact objectives and articulate a theory of change and how to measure impact and measure impact against targets. On the other hand, we found that they compared quite well on areas like ESG risk management, which isn't in and of itself one component of IMM best practice. The APAC market is at a somewhat earlier stage, perhaps than the European and North American market when it comes to adoption of IMM standards and frameworks, but that is rapidly saying that gap is rapidly closing. One more thing to keep an eye on in Asia, I think, is how the regulatory environment evolves. We've seen in Europe in particular how some of the regulatory frameworks and financial disclosure requirements, like SFDR in the EU and SDR in the UK, have provided, in a sense, both provided tailwinds and headwinds for the market, but have certainly driven more rapid adoption of IMM best practices.

SPEAKER_02 5:59

It seems like there's so much evolving constantly. Every year there seems to be new standards. And I like how you put it harmonization of everything kind of coming together. I know you've also recently launched Fund ID. For those that are perhaps less familiar or haven't heard of that before, let's jump into what that is and what that means for the market.

SPEAKER_03 6:20

Yeah, thank you for that question. So to understand Blue Mark's vision for fund ID, I think it's important for listeners to understand the current state of the impact and sustainable investing market and some of the challenges or barriers to growth. And one of the biggest barriers we hear about in conversations day in and day out is around the risk of greenwashing and impact washing. This is not just an issue for asset managers who obviously fear being publicly called out for not living up to their claims, but it's also an issue for asset allocators who are, you know, faced with the difficult task of conducting due diligence and differentiating between those managers with credible impact strategies and those who are perhaps just joining a FA or asset gathering. And one of the key market gaps in this respect that has become really apparent in recent years is the disconnect between asset managers and asset allocators when it comes to communicating efficiently about a manager's impact credentials and performance. According to a recent GIN survey, nearly 87% of impact investors said that comparing impact results to peers was a top challenge for the continued development of the industry. And it is largely this challenge that Fund ID is designed to help address. So FundID has been built on and informed by a range of what we consider to be the leading market standards, frameworks, and regulations. We brought them all together into this single holistic assessment methodology, which to simplify, we have organized around four key pillars of impact accountability. And those are strategy, governance, management, and reporting. We were intentional to avoid making the fund ID a measure or an opinion of what constitutes good or bad impact. That's in part because, frankly, as a market, we still don't have the evidence base or the time series or the track record to really, with integrity, have an opinion on what is a good or bad impact outcome. We can evaluate the completeness and reliability of the reported performance results. And we can certainly evaluate the data quality and assure the data, but we are not yet at a stage where we can create an opinion on whether or not the outcomes themselves are good, better, or best. So instead, we've we've focused a lot on assessing how impact is being pursued by an investor, which we believe is just as important as the the KPIs and the performance metrics that are being reported. So as a result, the fund ID is designed to include kind of both qualitative and quantitative information, with descriptive information about the why, the fund's impact strategy and objectives, and the what that is a funds portfolio impact results data, alongside a rating of the how that is the funds approach. And ultimately, we believe fund ID by bringing this assessment into a single framework, bringing the qualitative and quantitative together, the why, what, and how together offers a complete picture of a fund's overall approach and credibility, which includes, you know, a contextualization of the impact results. So the results of each fund ID assessment provide a fund level rating that that assesses both the strengths and the gaps in a manager's approach. You know, we've conducted a pilot with 37 fund managers and published a white paper on the results of that pilot. And we already have a couple dozen more managers signed up. So we're building a nice set of benchmark data, which we think will make the fund ID even more valuable as we go along.

SPEAKER_02 10:58

Perhaps you can share a bit more about this pilot. You said that Asia is perhaps a little bit more nascent to IMM. What have you seen in the pilot that Impact Investors here in Asia could learn from?

SPEAKER_03 11:08

When we first started thinking about fund ID, we approached AVPN and were very pleased with their willingness to partner with us to encourage a cohort of their members to participate. The 37 funds that participated in our pilot, I'm pleased to share that 10 of those were from the APAC region. So to give you a rough sense of the cohort, about 70% of the pilot funds were in private equity. The other 30% were in other alternatives, asset classes, private debt, real assets. 50% were in the sort of$100 to$500 million AUM range, assets under management. And the vast majority, about 94%, were targeting market rate returns. A key objective from the pilot was really to test the methodology and acquire learning through the process to ensure that it meets the needs of our still evolving market. And we received a lot of really valuable feedback, not only through our pilot participants themselves and in the execution of that, but through a number of stakeholder consultations that we've done with about 60 market participants, both allocators and managers. So at the highest level, we feel like the pilot pilot program and the demand we've had since then has really validated the need for a rating system like it and its potential for driving more efficiency in the capital allocation process. And that is really the North Star for Blue Mark is not to be an added tax, not to be an added burden, but rather to remove some of the friction and kind of unquantified tax that exists because of the interpretation challenge when it comes to allocators trying to navigate all of these complex standards and frameworks and interpret the quality of impact of various strategies.

SPEAKER_02 13:20

I know we haven't got too much time, but maybe just one thing I think is really important, which is why this space is so critical. You mentioned impact washing and greenwashing. Suddenly a lot of, you know, more traditional investors are looking towards impact. Why is this so important now to start evolving and implementing these standards?

SPEAKER_03 13:38

Yeah, I mean, I think, you know, if you zoom out and think even beyond impact and sustainable investing, virtually any product or service market that has successfully scaled sort of to institutional scale or mainstream scale. That can be consumer markets or institutional wholesale markets. For any of those markets, you know, at some stage, there is a requirement, not just for regulatory frameworks to pose some kind of minimum standards of good conduct and so on, but voluntary standards for best practice. And then along with that, independent certification of some kind, verifications or ratings, that is really a necessary ingredient to upholding market integrity in any product and service market. You see that, for example, with the credit rating agencies in the bond markets. You see it with fair trade and organic food certifications. In the early stages of market development, the trust can be built in more bilateral ways. But as markets become more and more intermediated, you need third-party providers of those kinds of tools that can ensure trust and accountability.

SPEAKER_02 15:00

How do you see it evolving or continuing to evolve over the coming years? Do you see any trends on the horizon already?

SPEAKER_03 15:06

Yes. Um, well, I think that um, you know, we're excited about fund ID again as this tool for connecting the needs of the allocators with the needs of managers. And as such, um, we believe as we grow the database of funds that have undergone the fund ID, that, you know, it could serve as an interesting clearinghouse of impact information for managers who themselves want to benchmark themselves, also want to ensure that they're constantly keeping up with best practice and are able to showcase that with allocators and for allocators to sort of mine a kind of larger directory of impact managers along with all the impact information that is important for conducting due diligence and engaging with those managers.

SPEAKER_02 16:04

I mean, I think one of the reasons I'm so passionate about this sector when it comes to the accountability and the transparency is that benchmarking and that being able to share with peers to see how we can grow together as an ecosystem. What advice do you have for perhaps investors that are not as connected, that want to be part of this movement and want to kind of support your vision as well?

SPEAKER_03 16:25

My first recommendation is just take the leap and, you know, getting an external third party like Blue Mark to come in and look under the hood and evaluate the system's performance reporting and the results around impact is probably one of the most efficient ways to come up to speed on where the market is and what practically investors need to do to get to best practice. You know, the most important thing is to ensure that as an investor, that you're confident in the claims you're making and confident that you can back up your claims with evidence. And so it really all starts with how you're articulating your impact strategy and thesis. And I think that's perhaps, yeah, the hardest but most important foundational piece is making sure that you can really back up your theory of change with robust evidence and translate that theory of change into a set of investment practices and obviously results that will align to that strategy.

SPEAKER_02 17:37

How do you see Blue Mark evolving to meet the needs of this ecosystem going forward?

SPEAKER_03 17:42

You know, we believe that with both the verification and rating services that Blue Mark has, the data and market intelligence, and some of these learning and collaboration opportunities that Blue Mark can really contribute to accelerating the development of the market for impact in Asia.

SPEAKER_02 18:01

Amazing. Well, thank you so much for your time. It's been fascinating. All the best with Fund ID and growth moving forward and look forward to following your journey. Thanks so much, Jackie. Really appreciate it.