ESG Investing

What Is Impact Measurement?


Data has always played an important role in investing. Traditionally, investors rely on numbers found in places like a company’s balance sheet or income statement to make and analyze decisions. While such information is important in the realm of impact investment, impact investors need additional measures to understand how effective a given company is at making progress on impact goals.

To get that data, impact investors look to various forms of impact measurements depending on the area of impact they are focusing on. Gender-lens investors, for example, might look at shifts in the demographics or policies of a company, while those concerned with environmental sustainability might be more interested in data on carbon emissions. Whatever issue or area they hope to influence, impact investors are unified in their aim to assess whether companies are actually creating change.

What Is Impact Measurement?

Impact measurement is an ongoing process in which investors identify targets, define a strategy, and then report on their progress toward meeting those goals. Since impact investing is a relatively new field, there is not yet a consensus on the best methods of measurement or data collection.

Still, several industry players have put forth a variety of tools, metrics, and frameworks to help investors measure impact. These include the Global Impact Investing Network’s (GIIN) comprehensive rating system, IRIS+, and Cornerstone Capital Group’s Access Impact Framework, which is based on the United Nations’ Sustainable Development Goals. Other groups have focused on measurement guidelines. For instance, the International Finance Corporation developed nine principles for impact management aimed at standardizing the process, while the Investment Integration Project outlines a three-step approach to measuring the effectiveness of an impact investment.

Until the industry agrees upon a set of standards, it’s up to investors to choose or devise their own strategies.

Why Impact Measurement Matters

Concerns of bad faith marketing or “impact washing” that overstates the real impact of an investment have sparked debate throughout the industry. These concerns have also sparked calls for standardization in impact measurement. Eight in 10 investors surveyed by the GIIN say that more transparency around impact investing strategies and results would reduce the risk of “industry mission drift.”

“To continue moving impact investing from niche to mainstream, we need to double down on advancing development of measurement, data, and transparency, and look to some industry-wide commitment to ensure the integrity and longevity of this important movement,” Jean Case, CEO of the Case Foundation, recently wrote in a column for Business Insider.

Until a single set of standards grows to prominence within the industry, it is up to investors to choose or devise their own strategies.
The process may feel overwhelming for investors new to the space—which is why partnering with a trusted adviser can be the best way to create a strategy that delivers both impact and returns.

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