Strengthening impact measurement and management to attract new investors

• • To attract impact investors, fund managers increasingly recognize the need to measure and demonstrate the impact of their investments credibly. IDB Invest is working with fund managers in Latin America and the Caribbean to build their impact measurement and management capacity from the ground up.

By Patricia Yañez-Pagans, Marielle Del Valle and Norah Sullivan

The global impact investing market reached an estimated $1.6 trillion in assets under management in 2024. Fund managers are increasingly looking to measure and demonstrate the impact of their investments credibly to attract a bigger slice of this pie.

This means adopting solid impact measurement and management practices. A good starting point are the Operating Principles for Impact Management. They provide a framework for integrating impact considerations throughout the investment lifecycle.

So far, 185 investors have committed to these principles, from experienced multilateral development banks like IDB Invest to fund managers who are just embarking on their impact journey. Others may be “Signatory curious” but need to level up their capacities before signing on.

And at IDB Invest, we can help them get there. We’ve started providing targeted technical assistance for fund managers to build their impact measurement and management systems from the ground up.

Why? Because stronger impact management practices in Latin America and the Caribbean are win-win for fund managers, investors, investees, and the people whose lives improve by these investments.

Here are some of our main tips and takeaways from our experience.

The investment cycle 

At its core, a strong impact management framework must cover the investment cycle from beginning to end. Tools must be connected by design, feeding into each other and the fund’s overarching impact strategy.

1. Clarify the impact thesis for each area of investment.Take a fund focused on the health sector, for example. Clearly articulating the main development challenges (lack of access to affordable, quality healthcare), who it affects (low-income communities), and how the fund aims to address it (investing in healthtech solutions that provide affordable quality services) is a critical first step. This also entails considering the magnitude of change that the investment could bring, as well as the risk of the impact not materializing.
2. Screen potential deals for alignment with the impact strategy. Screening tools for potential deals and due diligence help fund managers define the measurable expected contribution of the investment to the development challenges they aim to tackle. This contribution will guide the impact narrative of the investment proposal along with the impact score.
3. Develop an impact scoring tool.Impact scoring tools should be aligned to the globally-recognized five dimensions of impact. Based on our experience, we recommend an end-to-end tool that not only measures the expected impact of an investment upfront but also tracks its achieved impact over time until it exits the fund. Having a single impact score assigned to each investment also allows the fund manager to compare impact potential and results across its portfolio.
4. Define and track Key Performance Indicators (KPIs). Since an investment’s impact score requires defining KPIs to track, we recommend creating a list of metrics aligned to industry standards and mapped to the Sustainable Development Goals (SDGs). For each deal, the fund manager selects from these metrics as reporting requirements for the investee and monitors them annually.
5. Manage the portfolio for impact.The fund manager can use impact scores to monitor portfolio performance and inform decision-making. For instance, if an investment is underperforming, the manager can take action to help the investee get back on track. Similarly, high-performing investments can offer valuable lessons for others.

Lessons learned

Having a true commitment to measuring impact matters. Fund managers embarking on this journey should be fully committed to achieving impact. Having clear objectives, roadmaps, and timelines for establishing a comprehensive impact management system is key.

Early testing and iteration of impact tools are a must. Often, the first version of the impact scoring tool is not the last. It’s important to test initial tools with real investments in the portfolio and with multiple people to finetune them. Large variations in scores across evaluators may indicate that guidelines are too subjective; small variations may suggest the tool is not fully capturing differences across investments and may be less useful for portfolio management.

It’s also important to ensure that impact tools are fit for purpose. The most sophisticated tools become useless if fund managers can’t use them correctly. This calls for tailoring tools for user-friendliness and to reduce inconsistencies when applied by different people or across investments.

Finally, fund managers and their teams must be actively involved throughout the tool design and calibration process, participating in training sessions and learning by doing through piloting and implementation.

Our experience highlights the significant added value that multilateral development banks like IDB Invest can offer fund managers—and current or prospective Impact Principles signatories—on their impact management journey. By strengthening capacities on the ground, funds will be better positioned to attract investors in search of measurable impact in Latin America and the Caribbean.