Australia Markets open in 3 hrs 25 mins

Companies kept honest with new standard

A new global standard has been launched for investment companies claiming to drive profits through socially responsible investment practices.

Australian CEO Andy Kuper, who founded and leads LeapFrog Investments, has become one of 60 signatories to the new standards designed to keep companies honest about their claims to "impact investing".

The term, coined in 2007, refers to investing aimed at combining positive social or environmental goals with attractive financial gains.

In a bid to prevent companies from claiming they are impact investing without being held accountable, Dr Kuper worked with a team at the World Bank's International Finance Corporation on a set of nine principles designed to bring greater transparency to the investment sector.

"You have to state and quantify what positive impact you're going to have, then you've got to track it and report on it," Dr Kuper told AAP.

"Afterwards, the way you've tracked it and what you've achieved needs to be independently verified."

The 60 organisations, including Credit Suisse and UBS, who have adopted the Operating Principles for Impact Management collectively hold more than $350 billion in assets.

"It (now) becomes harder for others to say they're impact investing when they're not signed up," the LeapFrog CEO said.

Dr Kuper said greenwashing - where companies falsely claim to be environmentally friendly - was rife in many industries and the risk of "impact-washing" had increased in recent years as more conventional investors took interest in the idea.

"People say they're doing good, but how do you know that?" he said.

"Someone can't just go out and market themselves as an impact investor because it's popular."

The principles set out a minimum standard for signatories, which were unveiled in Washington DC in the US last week.

Some companies pursue investment in education and infrastructure, while others invest in healthcare or other sectors.

In the East Africa region, LeapFrog has invested in a pharmacy chain that provides authentic medications alongside expanding medical services.

"Thirty per cent of the medication provided by pharmacies is either fake, placebo or wrong medication," Dr Kuper said.

"They're driving health access and we've also created huge value - they have grown from having 18 to 50 stores."

With rapid growth, companies could be tempted to forget their social responsibilities.

That's why investors must keep close track of the companies they fund to ensure they don't change priorities and become simply driven by profit, Dr Kuper said.