ESG Investing

Could a New Tool Help Investors Make an Impact?


The possibilities for impact investments can seem limitless—but accurately evaluating their effectiveness can seem impossible. Fortunately, impact investors have a new, streamlined impact measurement framework that may help.

A report from the The Investment Integration Project (TIIP) offers investors a framework for where to focus and how to build an effective approach. Going beyond traditional returns metrics, the framework analyzes how to consider and target appropriate goals. The TIIP report centers on “system-level” investments, or big-picture issues like the United Nations’ Sustainable Development Goals.

Here are key takeaways from the report.

Selecting an Issue

The first step for investors is to select an issue where they can truly make an impact. The report suggests that investors consider four factors to make that determination:

  • Consensus on the issue’s importance
  • Relevance to investors
  • Potential for effectiveness
  • Uncertainty around the outcome

Consider, for example, an issue many investors are interested in: using their capital to mitigate climate change. First, there is a clear consensus around the risks that climate change poses to people, planet, and the economy. This goal has relevance because without any intervention, climate change may cause long-term damage to investors’ portfolios. Intervention has the potential for effectiveness, since reducing the speed at which the earth is warming will slow the impact of climate change. Finally, there’s uncertainty around the long-term impact of climate change, since it’s unclear exactly how climate change will affect the global economy and investors. According to the TIIP criteria, all this makes mitigating climate change an investment area with a true potential for impact.

Measuring Effectiveness

Once an issue has been selected, TIIP’s impact measurement framework suggests that investors take a three-step approach to measure effectiveness:

  • Assess issues and set measurable goals: Using the climate change example above, relevant goals might include global reductions in greenhouse gas emissions or the reduction of carbon dioxide concentrations in the atmosphere.
  • Assess tools, implementation effectiveness: The report discusses three types of system-level tools: field-building tools, investment-enhancement tools, and opportunity-generation tools. For climate change, these tools might include joining organizations like the Global Investor Coalition on Climate Change or the Climate Solutions Collaborative that bring investors together to achieve climate change goals.
  • Measure influence: In order to determine the effectiveness of an investment, it’s important to understand its long-term influence on the issue and potential paradigm shifts around it. For climate change, the paradigm shift over time could be moving economies away from fossil fuels and toward renewable energy sources. Such shifts are difficult to measure, but there’s evidence that it’s happening. More corporations and financial institutions, for example, recognize the Task Force on Climate-Related Financial Disclosures as a baseline standard, the TIIP report notes.

Seeking Advice

For investors just entering the impact space, TIIP’s suggested process can provide a useful focus. As the report’s authors write, “[M]uch of what asset owners and managers encounter may seem foreign as it draws from the field of systems dynamics to bring into focus how investors, individually or collectively, can achieve system-level influence and paradigm change.”

But even with the steps outlined above, given the shift away from traditional investment-selection methods, it likely makes sense to seek help from a third-party expert. Working with a trusted advisor who’s well-versed in the impact investing space can help ensure a strategy that’s effective on all counts, from impact to returns.

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