ESG Investing

New GIIN Investor Guide Refines Impact Measurement

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The Global Impact Investing Network (GIIN) is leading a new yet familiar effort to give investors the means to measure critical impact performance. The May 2021 update of its investor guide COMPASS:The Methodology for Comparing and Assessing Impact claims to provide “a tested, widely accepted methodology to assess and, most critically, compare impact results” and applies this to three areas: scale, pace, and efficiency.

Building on Feedback

The May update follows a period of public comment on the previous version, published in November 2020 as a novel analytic methodology for understanding and comparing impact performance. This latest version of the guide incorporates the input of 367 individuals representing more than 150 organizations.

According to lead author Rachel Bass, the comments highlighted the various ways people look at the data—narrowly or widely, from a backward- or forward-looking view. With this insight, the authors updated the guide with an eye toward practicality to investors.

Investors also expressed an eagerness to know what actions, processes, and activities best position companies for greater impact. Yet the biggest takeaway was “a recognition that investors really want to use impact as an input and a factor in all of their decisions,” according to Bass.

GIIN’s updated methodology aims to support investors as they:

  • Create a portfolio that maximizes impact within a given set of parameters
  • Identify investments with high impact potential and a strong historical impact performance
  • Manage investments for greater impact
  • Exit investments responsibly
  • Further improve their strategy based on experience

Metrics like these are vital; they differentiate one opportunity from another and highlight whether companies’ efforts are making an impact.

Targeting COMPASS Metrics to Measure Impact

GIIN’s refreshed methodology accounts for these comments as well as the multidimensional nature of impact. The updates offer investors insight into three critical impact performance figures: scale, pace, and efficiency. GIIN’s methodology is replicable across investment strategies and asset classes in order to help investors understand their contribution toward impact.

Metrics like these are vital; they differentiate one opportunity from another and highlight whether companies’ efforts are making an impact. Outside such analytic metrics, the guidance also highlights the critical role investors and data analytic providers play in advancing insight on impact performance.

Specifically, GIIN urges investors to:

  • Build impact performance benchmarks. Given the relative infancy of impact investing, there is a significant lack of impact performance benchmarks based on historical performance. Establishing such benchmarks in a wide variety of financial markets may allow investors to more strongly integrate impact into their decision-making.
  • Generate research into the drivers of impact performance. Further research into the various drivers of impact performance will better allow investors to see exactly how their investment choices influence impact results.
  • Develop standardized impact reporting templates and predictive tools. Practices for reporting impact performance to others outside the industry must be carried out in a way that comprehensively reflects impact claims.
  • Establish practices and procedures for the consistent verification and guarantee of impact results. Verification of impact management processes helps to minimize false impact claims and ensures robust impact management.

Gauging the Future of Impact Investing

Developing and using methodologies for measuring impact is crucial for those looking to make a critical impact with their investments. Although such measurement is still an evolving area in the industry, Bass believes that “as more organizations incorporate these metrics into their processes, we will begin to gain more insight on real impact results in a reliable and consistent manner. At that point, the hope is that not only will more capital flow toward impact investing, but also more impact per dollar.”

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