It’s all about context.
Impact investing experts agree that, for impact investing to be embraced by the mainstream, it needs more sophisticated ways to measure impact, mimicking methods reminiscent of those used for conventional finance. One such tool, figured the folks at the Global Impact Investing Network (GIIN), would be benchmarks allowing investors to compare the impact performance of their portfolios against those of their peers the same way they can for financial results.
Amit Bouri
With that in mind, the GIIN just announced a three-year effort it’s calling Impact Lab, aimed at developing analytic benchmarking tools, with funding of $4.5 million from EQT Foundation, Temasek and Visa Foundation. “We want investors to understand impact performance in ways they haven’t before,” says Amit Bouri, co-founder and CEO of the GINN.
In addition to the ability to compare impact performance to that of peers, the tools also will help show “how significant an investment’s impact is relative to what the world needs,” says Bouri.
Building on IRIS+
In 2019, the GIIN introduced IRIS+, with the goal of creating common standards for impact measurement. It has over 30,000 users. The next step, according to Bouri, was determining how to communicate that impact and how to achieve it. To that end, several years ago, the GIIN launched pilot studies focusing on such areas as clean energy access, during which a group of investors shared data about their impact.
Then they looked at whether they could conduct an analysis across investment portfolios—to address the vacuum that existed. “At best, investors had data on their own portfolios with no information beyond their own walls,” says Bourit. So the GIIN set out to develop a way to fill that vacuum.
The Plan
The first step was to create the benchmarks. Earlier this year, the GINN introduced a prototype focused on financial inclusion. Next is developing and refining a suite of benchmarks, starting with agriculture, both sustainable and smallholder related. After that, the plan is to move into clean energy. Two more still yet-to-be-determined sectors will follow. Each benchmark will be presented to other members of the impact world for feedback.
As the data and analysis become more sophisticated, investors also will be able to look at the relationship between financial and impact performance, risk and liquidity. Those issues “have rarely been backed by good data,” says Bouri. Plus the tools will allow for other types of other analysis—say, how impact results are achieved over time, with implications for matters such as holding periods and what can be expected of early stage vs. later-stage investments.
They also will let investors see whether an investment is moving at the pace needed to reach a specific objective set by the Sustainable Development Goals or another measure. If a fund is growing the number of clients served by, say, 7% a year, is that at, above or below what the SDGs call for? “That situates the impact in the context of the broader societal or environmental need,” says Bouri.
Ultimately, by the end of the three years, the goal is to have a set of benchmarks helping the impact market achieve a higher level of sophistication. “We’re going beyond incremental progress and taking a quantum leap forward in our understanding of impact intelligence,” says Bouri. In addition, according to Bouri, that more sophisticated understanding will likely also attract more capital to the sector.