A Blue Ocean Approach to High Integrity, High Efficiency Forest Impact Investment  

Using the 9 Impact Principles to increase credibility and efficiency in your forest impact investment strategy 

A Blue Ocean Strategy means breaking away from competition by combining differentiation and low cost to create new market opportunities. 

With regulations like SFDR’s Article 9 labelling making forest impact investment funds look alike, standing out in fundraising is tougher than ever. So, how can Asset Managers avoid the crowded “red ocean” of sameness? 

Many assume a stronger impact strategy comes with higher costs—but it doesn’t have to. The key is efficiency and credibility, focusing on quality over quantity in impact diversity. 

A powerful tool for this is the Operating Principles for Impact Management (OPIM). This framework helps strategize, implement, and measure impact without added cost—simply by managing it systematically across your portfolio. 

In this week’s article, we’ll explore OPIM through forestry examples, showing how you can boost impact integrity, maximize efficiency, and attract investors by setting your forest impact fund apart. 

The OPIM are a relatively new kid on the block when it comes to best practices in impact investment, being launched by the IFC back in 2019 (World Bank, 2019). The purpose of the OPIM was and is to create transparency, credibility and discipline to the impact investing market to address concerns about “impact-washing” in the wild west of this relatively new approach to investment. You can become a signatory and demonstrate your commitment to aligning your impact management system with the OPIM, or more simply – just use it, and you’ll be able to demonstrate your commitment through your actions. 

The 9 Operating Principles for Impact Management 

The OPIM defines 9 Principles to support asset managers to build, manage and divest their investment strategy with an impact lens. These principles are: 

1. Define strategic impact objectives consistent with the investment strategy 

2. Manage strategic impact on a portfolio basis 

3. Establish the Manager’s contribution to the achievement of impact 

4. Assess the expected impact of each investment, based on a systematic approach 

5. Assess, address, monitor, and manage potential negative impacts of each investment 

6. Monitor the progress of each investment in achieving impact against expectations and respond appropriately 

7. Conduct exits considering the effect on sustained impact 

8. Review, document, and improve decisions and processes based on the achievement of impact and lessons learned 

9. Publicly disclose alignment with the Impact Principles and provide regular independent verification of the alignment.  

Applying the Principles to Forest Investment 

1. Define strategic impact objectives consistent with the investment strategy 

This is where your Forest Impact Fund will be forthcoming on the environmental, climate, social, bioeconomy or other impact objectives it aims to achieve. Just as you will target an X% IRR over the investment horizon, you may also target impact objectives such as climate positivity, nature improvements, rural economic development and so on. These impact objectives should not be at odds with your financial objectives. You can read more about how to assess if they are here.  

2. Manage strategic impact on a portfolio basis 

I often hear Fund Managers argue that they cannot compare the impact profile of one asset in their portfolio to another because they are ‘so different’. Well, we’ve managed to do this for financial returns, we’re now doing it for climate – with emissions removed or avoided emissions. It doesn’t end here – you can set measurable portfolio level impact targets while still capturing the diversity and richness of asset level impacts separately. A key feature of an impact strategy that sets Asset Managers apart, is having carried interest or some other incentive structure that is linked to portfolio-level impact performance. If you are going to have such an incentive structure, you will need portfolio-level objectives to measure up against. 

3. Establish the Manager’s contribution to the achievement of impact 

This is where you explain the why of your impact strategy and document the narrative on your contribution to the achievement of impact that you set targets for. Impact investing is often best communicated with contextual reference. Though quantitative measures are important, they often do not do justice to the value created by the impact. For example, if you have an impact objective of uplifting the socioeconomic situation of the local rural populations in the vicinity of your forest investments, what means more – 2000 jobs created, OR – prior to the investment, local people were living below the poverty line. Children needed to work to support the family, instead of attending school. Now, thanks to the investment’s program for enabling local employment – 2000 families are earning higher wages, raising them above the poverty line, and 5000 children are now attending school. 

4. Assess the expected impact of each investment, based on a systematic approach 

Principle 4 is all about the impact management system and starting from a well-informed place. It relates to capturing baseline information on your target impact areas, so that you can credibly claim responsibility for creating the impact. It relies on establishing KPIs and a monitoring procedure based on well recognized methodologies for data collection and should address the following points: 

• What is the intended impact? 

• Who experiences the intended impact? 

• How significant is the intended impact? 

At the outset, the Asset Manager should assess the likelihood of achieving the impact – and as such, should conduct a risk assessment to identify what might prevent impact objectives from being achieved. 

This is also where setting the foundation of additionality comes in. If you have a strategy that focuses on protecting high conservation values, and your KPIs relate to “hectares protected”. I want you to ask yourself – would those hectares have been protected anyway? If you’re operating in jurisdictions where for example, its required by law to protect 50m on either side of any streambed – you then map this out and protect it from harvesting activities – I would argue that you are not creating impact. Anyone operating in this area would need to do this. The principle here is that based on your objectives, you progressively monitor how your involvement in the project has created positive outcomes in line with your objectives (that wouldn’t have happened anyway in your absence). 

5. Assess, address, monitor, and manage potential negative impacts of each investment 

Going back to the SFDR, this is where a key difference between Article 8 and Article 9 funds really shines through. In Article 9 Funds, this is referred to the management of Principle Adverse Indicators (PAIs) and the commitment to comply with the do-no-significant-harm (DNSH) principle. 

The Impact Principle here, promotes that Asset Managers seek a systematic and documented process to identify and avoid, and if avoidance is not possible, to mitigate and manage negative impact risks.  

Let’s imagine a forest impact investment scenario with carbon sequestration impact objectives and link it to one of the PAIs. Perhaps the project is going to utilize highly productive species, but there is a PAI relating to biodiversity – where the asset manager must consider activities negatively affecting biodiversity-sensitive areas. Carbon storage and biodiversity objectives do not necessarily go hand-in-hand. Here, the asset manager would need to ensure they were not inadvertently harming biodiversity with their climate strategy. 

6. Monitor the progress of each investment in achieving impact against expectations and respond appropriately 

This is pretty straightforward and involves using the impact management system that you established with Principle 4 to monitor progress toward the achievement of positive impacts compared to the targets you set. It should be conducted together with your investee, or in the case of asset-only investments, with the local operator. It should follow a regular frequency, specify methodology for data collection, data sources, responsibilities for data collection, and how and to whom data will be reported. An important piece of this is adaptive management – where the results need to be assessed and if it is determined that the project’s activities are not having the intended outcomes, appropriate adjustments are needed. 

If an asset manager has biodiversity objectives to increase the prevalence of fauna (abundance of species and individuals), the monitoring approach might be to use camera trapping, taking pictures twice per year with a ground survey from a local biologist. The survey data could then be synthesized and summarized in a semi-annual or annual sustainability report – delivered to investors and/or made publicly available. 

7. Conduct exits considering the effect on sustained impact 

This can be tricky to apply, and the Principles appreciate this. In an ideal situation, an Asset Manager will seek divestment opportunities where the successor investor also cares about impact and sustaining the benefits created. The Impact Principles ask the Asset Manager, in good faith, but also in consistency with its fiduciary concerns to consider the effect which the timing, structure and process of its exit will have on the sustainability of impact. Some investors are more stringent on sustained impact than others – and you will be (must be) privy to this when you’re negotiating terms before an investment is even made. Where I would say you are not honoring this principle, is if you purely target the highest bidder – let’s say you’ve completed some natural reforestation and commercial reforestation and sell the forest land after 10 years to a developer who is going to build vacation properties, or convert the land to intensive agriculture use. I would say such drastic land use changes, even though not at your hand, question your integrity as an impact forestry Asset Manager. As the Principles state – you need to consider your fiduciary duty, but you also need to act in integrity with the strategy and what your investors signed up to in the first place. 

8. Review, document, and improve decisions and processes based on the achievement of impact and lessons learned 

In this Principle, you basically do what you would from a material or financial standpoint, but with your impact performance. You want to compare the results of both your impact and financial KPIs to your targets and use these findings to improve operational and strategic investment decisions and management process. 

Let’s go back to the impact target of creating 2000 local jobs. Let’s assume in this example, that you found most of the jobs were being filled by migrant workers because at the end of the day – the local people were not interested in that kind of work. Instead, you discovered that they prefer to work in farming – however you also learn they are having productivity challenges. You could change your target to improve 2000 farming livelihoods through making their farming practices more productive. Meanwhile, you would reduce encroachment risk where these farmers were illegally growing crops on your future plantation sites because their own lands were not sufficiently productive. Your impact is now better targeted, and at the same time, you have reduced a business risk to your investment.  

9. Publicly disclose alignment with the Impact Principles and provide regular independent verification of the alignment.  

Here is where your credibility shines through. Unfortunately, its also where we see green-hushing take center stage – where all too often Asset Managers keep quiet all the good work they are doing to purposefully stay out of the spot light. Investors are very sensitive to headline risk and because the media loves a negative story, they will often spin one when it doesn’t even exist. There are ways around this of course, through a standardized publicly facing sustainability report and more details being shared directly with investors. The Principles also call for independent verification of a portfolio’s alignment with the Impact Principles. Though I don’t think this is a bad idea, I do think in many forestry cases, it is redundant and over-kill. The reason being that nearly all sustainably managed forest assets these days are 3rd party certified (in many cases by more than one certification standard). The certification process includes independent verification already – and pragmatically speaking – this additional audit could be an additional and unwanted drain on resources. I believe that an internal audit system could be just as effective.  

Credibly and Pragmatically Apply the Impact Principles in your own Forest Investment Strategy 

If you are an Asset Manager and you would like to align your forest impact investment strategy to the Impact Principles, reach out and we can talk about how to apply them in such a way that builds credibility, structure for efficient application and pragmatism. We want impact forestry to be simplified, not made more complex!  

BONUS – This spring, I’m offering 6 Free advisory sessions on a first-come, first-served basis – where we will focus on breaking down what is working and what isn’t within your forest impact investment strategy and I’ll provide tailored recommendations. Link to register is here.

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