As the private sector arm of the Inter-American Development Bank Group (IDB Group), IDB Invest is leveraging decades of experience as an impact investor to serve as a gateway to SDG impact in Latin America and the Caribbean.
IDB Invest’s mandate is to maximize development impact while maintaining financial sustainability, a two-sided objective shared with many impact investors. To crowd in private capital, we offer our strong capacity to select and structure projects with the greatest impact potential, manage ESG risks, and build a strong pipeline of SDG-enabling investment opportunities in the region.
As a member of the IDB Group—the largest provider of development financing and technical assistance to Latin America and the Caribbean— we also have the ability to leverage the IDB’s public policy and regulatory expertise, as well as IDB Lab’s capacity for building innovation ecosystems and financing inclusive early-stage ventures.
As the appetite for impact continues to grow and more investors adopt the impact label, it is increasingly important to converge around a shared understanding of what it means to invest for impact. It is one thing to integrate ESG factors into responsible investment decision-making as a screening tool, and another to intentionally pursue investments with the purpose of generating a net positive, measurable social or environmental impact alongside financial returns. To address this challenge a group of MDBs, DFIs, banks, impact asset managers, asset owners, and industry associations, including IDB Invest developed the Operating Principles for Impact Management, which provide common guidelines for managing investments for impact. As more investors commit to these principles and their alignment is independently verified, the stronger and more transparent the impact investing market will become.
- PRINCIPLE 1:Define strategic impact objective(s), consistent with the investment strategy.
- PRINCIPLE 2: Manage strategic impact on a portfolio basis.
- PRINCIPLE 3: Establish the Manager’s contribution to the achievement of impact.
- PRINCIPLE 4: Assess the expected impact of each investment, based on a systematic approach.
- PRINCIPLE 5: Assess, address, monitor, and manage potential negative impacts of each investment.
- PRINCIPLE 6: Monitor the progress of each investment in achieving impact against expectations and respond appropriately.
- PRINCIPLE 7: Conduct exits considering the effect on sustained impact.
- PRINCIPLE 8: Review, document, and improve decisions and processes based on the achievement of impact and lessons learned.
- PRINCIPLE 9: Publicly disclose alignment with the Principles and provide regular independent verification of the alignment.
To learn more about the Operating Principles for Impact Management click here.
In 2016, IDB Invest launched our Development Effectiveness Framework, a state-of-the-art contribution to the development finance industry.
The DELTA Tool (for Development Effectiveness Learning, Tracking and Assessment), which has set a new benchmark for other organizations committed to development tracks each project at every step of the project cycle. It allows us to standardize how we score and analyze different aspects, such as:
- How well does the project align with the IDB Group’s development priorities?
What are the potential economic returns for IDB Invest and for the client?
To what extent will the project produce social benefits?
How can its development impact be accurately assessed and verified?
IDB Invest’s Impact Management Framework is an end-to-end series of tools and practices that support the complete project lifecycle and integrate impact and financial considerations into portfolio management. In short, it allows us to build, measure, and manage a portfolio of financially sustainable investments that contribute to reaching the Sustainable Development Goals (SDGs). While our focus is on Latin America and the Caribbean, our framework is region and sector agnostic. It can be adapted to the strategic, geographic, sectoral, and other priorities of other MDBs, DFIs, and impact investors. It is also fully aligned with common market practices, such as the Impact Management Project’s five dimensions of impact.
- Origination: Selecting the right projects and clients
- Structuring: Assessing potential impact and designing projects for results
- Impact Monitoring, Measurement, and Evaluation
- Generating and transferring knowledge
- Implementing operational findings
Although we assess the outcome of every project in our portfolio, some are selected for more in-depth evaluation in partnership with our clients. We use impact evaluations and innovation testing to determine whether a new product or approach is effective and whether it can be improved, replicated or scaled up.
Just as companies are becoming increasingly data-driven in their decision-making, innovation testing helps us to generate evidence and maximize the value of the knowledge we’re accumulating. Of course, doing a thorough impact evaluation is an investment of both time and resources. We select the projects we evaluate carefully and always keep our clients’ interests in mind. We start by asking key questions, such as:
- Is the project representative of existing or potential lines of business? The more representative it is, the more widely we will be able to apply and disseminate the knowledge we accumulate and the good practices we identify.
- Does the project involve innovative business solutions with a development impact? By learning which solutions work—and, just as importantly, which ones don’t—we can add value and help clients to implement the right ones.
- How relevant is the project or operation? Sometimes the sheer size or prominence of an investment demands a thorough evaluation. This provides a greater level of accountability to stakeholders and can inform public debate.
Ultimately, we provide our clients with the technical guidance needed to execute a project and conduct a well-designed evaluation or do innovation testing; this helps them perform at a higher level and helps us achieve greater development impact.