Positive Impact Investing

Abstract

Integrating environmental, social and governance impacts into investment and financial decision making and especially focussing on the upside of ESG (positive) impact investing is a nascent field of research. At the moment, it is mostly practitioners that are driving the impact assessment process and its integration into investment and finance. This has various reasons from managing risks effectively to protecting reputation and addressing stakeholder requirements. The process is most obvious on the lending side where collaborations between the Worldbank, International Finance Corporations, other multilaterals and the private banking sector have contributed to the development of relatively consistent ESG standards which are often referred to as "Global Administrative Law". It has become increasingly the norm for international development banking institutions, including multilateral development banks (MDBs), and many private sector lenders, to adopt comprehensive environmental, social and governance (ESG) safeguard policies and standards to circumscribe the projects and activities they finance. This is particularly the case in the financing of major infrastructure projects in developing countries or economies in transition. For Internationals Banks it is today good practice to integrate environmental, social and governance considerations into the lending process. For project and structure finance, the Equator Principles offer a financial industry benchmark for determining, assessing and managing environmental and social risk in international finance activities. For lenders such as the EBRD or IFC that focus on private sector lending, the performance standards of environmental and social governance are imposed upon private corporate entities, against which most requirements of international law could never be formally applied. The Equator Principles Association website recognises growing 'convergence around common environmental and social standards', as well as the 'development of other responsible environmental and social management practices in the financial sector and banking industry', such as the Carbon Principles or the Cross-Sector Biodiversity Initiative. Also the export credit agencies, through the 2012 OECD Common Approaches, are increasingly drawing on the same standards as the EPs'.

Keywords: ESG, Positive Impact Investing, Environmental Impact, Social Impact, Governance Impact

JEL Classification: G11, G15, A13