Investors attracted more to funds with impact investment ratings

Funds and companies that undergo social and environmental impact rating now stand a better chance of attracting investors.

A group of 15 investors, drawn from private equity, global financial institutions, foundations, among others, have indicated that a preference for companies and funds that are rated on the Global Impact Investment Rating System (GIIRS) Ratings and Analytics platform would be part of their impact investing strategy.

The funds have committed to having companies that they have invested into and those that they will in future, take the rating.
The new rating platform was recently launched by B Lab, an American non-profit organisaiton powering it.

The launch follows a successful test globally, with over 200 companies across 30 countries from 25 impact investing funds.

According to Olivia Muiru, a rating associate at GIIRS, 30 East African companies were rated during the test. Out of these, 19 are in Kenya, five in Tanzania and six in Uganda. In the West African region, only three were rated: one in Nigeria and two in Ghana.

In a statement announcing the launch, B Lab indicated that while GIIRS Impact Ratings assesses companies’ and funds’ social and environmental impact; the GIIRS Analytics platform analyses data on the social and environmental impact of companies and funds across geography, sector, organisational maturity, and size.

Ms Muiru said the main benefit for the firms rated on the platform is in its use for fund raising.

“A GIIRS-rated company owns its rating report and can use it to raise capital with other impact investors. Companies will also be included in the GIIRS analytical tool which will be accessible to Impact investors, funds and high net worth individuals, increasing exposure,” she explained.

Besides, she added, companies and funds can use benchmarking services provided by the platform to track their performance over time. It would also be a channel for acquiring knowledge or best practices for their sector.

In an earlier interview, the president of the Rockefeller Foundation, Judith Rodin, told The EastAfrican that the impact rating platform would play a role similar to the one that credit rating agencies like Moody’s and Standards & Poor’s do for the financial sector.

The statement from B Lab stated that GIIRS would address challenges posed by the absence of standards which could stand in the way of impact investment.

“Without credible third party standards, there are significant barriers-to-scale including: a fragmented market, high due diligence and transaction costs, limited understanding by investors of how to manage for impact, and a weak policy environment due to a dearth of information. GIIRS helps remove these barriers to growth and attracts mainstream capital to the impact investment space,” it added.

Now, attention is shifting to encouraging companies and funds to undergo the rating in order to meet B Lab’s target to provide impact ratings for more than 2,500 companies and over 350 funds in the next five years.

During this period, it also hopes to provide over 150 institutional and high net worth investors with the ability to benchmark social and environmental impact for the first time the same way financial performance is benchmarked today.

In fact, funding to the tune of $9 million from Deloitte, Prudential Financial Inc., and Rockefeller Foundation will be channeled towards accelerating adoption of the GIIRS Ratings & Analytics platform.