Further Exploring the Nexus of Impact Investment and Anti-Corruption

Several months ago on this blog, I examined the role that impact investors can play in advancing the fight against corruption in conversation with Ambassador John Simon of Total Impact Capital. To explore this important question in further detail, I spoke recently with Huma Yusuf, Director, Business Integrity, and Varun Sharma of British International Investment (BII) and Chara de Lacey, Head of Business Integrity at Transparency International UK (TI-UK). 

BII and TI-UK have collaborated on two important guidebooks in this space: 2022’s Investing with Integrity: The Benefits and Challenges of Integrating High Business Integrity Standards in Impact Investments, and 2024’s follow-up, Investing with Integrity II: How Corruption Undermines Environmental and Social Outcomes. The first of these two tools offers a series of recommendations for asset owners, impact investors, companies that receive such investment, and the employees, suppliers and other stakeholders of such companies, about why and how the impact investment community should make business integrity “central to their development mandate,” rather than solely a question of compliance, among other points. The second takes a practical look at particular steps impact investors working in high-corruption markets can take to identify and mitigate risks that can undermine social and environmental outcomes. 

As Yusuf explains, the collaboration was born of BII’s position at the time as the only development finance institution with a dedicated business integrity department. BII makes investments in particularly high-risk environments, and with investees that often have nascent risk management frameworks and internal controls, including in markets with weak regulation. The aim was to explore what BII could do, beyond the counterparty screen, to “help investees build systems to manage integrity risks”; and to convince the broader development finance community of the need to prioritize business integrity, corporate governance and strong internal controls.

BII and TI-UK consider impact investors to have a special role in upholding integrity, and that managing integrity risks in the impact sector is distinct from the way in which traditional investors approach emerging markets. Yusuf stresses that investors who seek “impact can't be blind to the broader risks to development outcomes in the ecosystem.” De Lacey adds that while various investors will prioritize different types of issues, for impact investors, it is critical to maintain the highest business integrity standards. BII and TI-UK recognized that for impact investors, advancing the rule of law and fighting corruption – which is covered by SDG 16 – were the least addressed outcomes, compared with issues such as employment generation and positive environmental outcomes. Development finance institutions (DFIs) and impact investors need to mitigate execution risks like all investors, but also cannot ignore the fact that corruption erodes other sought-after development aims.

Expanding on that point, de Lacey notes that business integrity should be a consideration throughout the investment cycle, for both investors and investees. These guides, by engaging impact investors in particular, bring a new dimension to the conversation, emphasizing that business integrity is part and parcel of the development mandate. She explains that for impact investors, environmental and in some cases social or human rights due diligence was already built into the equation, but there was no specific attention being paid to the underlying, root cause issues that can impact a firm’s success when the investor is “setting out to do good.” From that point of view, these guides embody a response to the investor who might say that because of the focus on impact, they “know” that their investees are “good” companies that don’t engage in corruption.

De Lacey says that it is important to focus realistically on “what happens next, after due diligence and the investment,” because it only takes one incident to upend impact. Yusuf notes that while impact investors already tended to carry out more detailed due diligence in order to identify the right partners (in terms of alignment and track record) with whom to achieve development aims, one finding of the first report was that putting all the effort on pre-investment due diligence did not account for challenges through the investment lifecycle. In terms of next steps in this collaboration, a third guide in this series, scheduled for autumn 2025, will address that issue in more detail. According to de Lacey, the new guide will look more deeply at the post-investment stage, providing guidance on how impact investors can monitor business integrity red flags and related operational risks in their portfolios, including monitoring the effective implementation of business integrity risk management approaches, thereby improving portfolio resilience and performance from both a financial and development impact perspective.

Yusuf points out a number of concrete outcomes from this effort to date. For example, many European DFIs have created dedicated business integrity functions, the African Venture Capital Association has launched a business integrity resource hub, and private equity and venture capital associations across South Asia are paying more attention to business integrity and corporate governance practices. As Yusuf and de Lacey say, the impact community is recognizing that an enhanced focus on business integrity preserves value, prevents losses, mitigates the negative development impact of corruption, and helps deliver social and environmental outcomes.

Marc Schleifer

Governance, Democracy and Economic Development Expert