Many investors use governance structures as a risk mitigation measure, but it is important to go beyond this to assess impact governance.
It is key to look for effective impact governance both internally and externally, which means assessing factors including:
• whether accountability for impact is clearly embedded at board and senior levels;
• if financial incentives are tied to impact (where relevant);
• if there is oversight of impact with a cross section of appropriate backgrounds (eg an advisory board); and
• if there is an independent impact verification process (eg through the IFC Operating Principles).
It is important to consider this assessment of impact governance in the context of the size and nature of the organisation. For instance, we will have different expectations for an experienced and well-resourced manager, compared with a first-time fund.
A B Corporation certification is a useful indication that effective impact governance is in place. B Corps are businesses that commit to ongoing measurement of how they balance purpose and profit.
By amending their company documentation, they are legally required to consider the impact of their decisions on workers, customers, suppliers, community and the environment.
To become a B Corp, organisations first undertake the B Assessment, which scores them against a range of social and environmental criteria.
They are certified if they score 80 or above out of 200, and then if they haven’t already, are required to change their constitutional documents.
Read the full comment in ESG Clarity’s September 2022 digital magazine.