The Global Impact Investing Network Measures Progress by Strong Management Practices
Interview with Amit Bouri, Chief Executive Officer of the GIIN
The Global Impact Investing Network is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing around the world. The GIIN builds critical infrastructure and supports activities, education, and research that help accelerate the development of a coherent impact investing industry. As impact investing continues grow and open up to new audiences, a key concept that the GIIN addresses and that investors and advisors must be cognizant of is the crucial nature of impact measurement and management. As per the GIIN’s Business Value of Impact Measurement Report, there are several key business values that can be derived by impact measurement including: revenue growth, improving operational efficiency, improving deal sourcing and targeting, building market reputation, and risk mitigation. The GIIN’s efforts will be centered on strengthening and consolidating impact measurement practices, reducing wasteful fragmentation, and using environmental and social data.
Furthering their research and highlighting the growth in impact investing, the GIIN has released Impact Investing Trends: Evidence of a Growing Industry, their first report speaking specifically to trends in the market over time. Based on data and interviews from annual impact investor surveys, the following key trends were observed:
1. Impact investors are demonstrating strong growth, with assets under management growing by 18% compounded annually from 2013 to 2015.
2. Impact investments are made across the world, in a diverse range of sectors and using various financial instruments, reflecting the wide variety of impact theses and strategies pursued by impact investors.
3. Impact investors are consistently satisfied with both impact and financial performance.
4. The industry is making progress against several key indicators of market growth, despite there being certain barriers remaining to industry development.
I spoke with Amit Bouri, Chief Executive Officer of the Global Impact Investing Network, on the topic of impact management and its vital importance to impact investing. The GIIN is working to promote the importance of impact measurement, releasing important research documenting the benefits of impact measurement—Jason Howell
3BL: Impact investing is a relatively new field of activity that is showing rapid growth. Why do you think there’s such interest, and what are the specific positives for impact investing?
AB: Impact investing is very powerful. Investors can incorporate values into investing and help solve global problems such as addressing poverty and climate change. Impact investing challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations and that market investments should focus exclusively on achieving financial returns. Impact investing offers diverse and viable opportunities for investors to advance social and environmental solutions through investments that also produce financial returns. The Global Impact Investing Network has 220 members in 32 countries and includes major global banks, insurance companies, hedge funds, and family foundations. These organizations are making investments into companies, organizations and funds, in both emerging and developed markets, with the intention to generate social and environmental impact alongside a financial return. Investments are made in such sectors as affordable housing, sustainable agriculture, renewable energy, microfinance, healthcare, and education. The GIIN works with members through convenings, education, and research and is a catalyst in launching sustainable investing goals. Current investors are making a case to their peers and many organizations are considering getting involved in impact investing.
3BL: What role does measurement have in the industry and what do you see as the major challenges to increasing awareness and growth in impact investing?
AB: Measurement and specifically, impact measurement, plays a critical role in impact investing. Currently, there are traditional financial measures (balance sheets, income statements) that are industry standards, but measuring impact is much more difficult. To measure impact there is a need for a common language and definitions as well as a determination of what tools are needed in order to establish meaningful metrics. The biggest challenges facing impact investing are a lack of understanding, the misconception that social impact cannot be achieved without sacrificing financial return, and finally, how to measure impact in non-traditional financial measures. The GIIN plays a critical role as a collective action platform. We are able to draw upon the work and expertise of our member organizations and synthesize the best and brightest ideas into our research and proprietary catalog, IRIS. The GIIN has managed IRIS since our inception, provides common definitions, and helps define the language of impact.
3BL: How do you develop measurement standards for such a new field?
AB: In impact investing there are two critical components for measurement: standard definitions of metrics and how do you manage for greater impact. Standards financial definitions are performance standards and include profit/loss, depreciation, balance sheets, and cash flow as a few examples. Using standard definitions you are able to compare to other established benchmarks. When determining impact you are examining dimensions of company’s operations: products and services, greenhouse effects, carbons in the atmosphere, water usage, employee welfare, and many other considerations. IRIS is the catalog of generally accepted performance metrics that leading impact investors use to measure social, environmental, and financial metrics across all industries and sectors. Using IRIS metrics makes it easier to measure performance, compare results with peers, and communicate findings to relevant stakeholders. IRIS helps manage towards greater impact and is at the core of impact investing. One example of the GIIN’s involvement and leadership in advancing impact measurement was our co-chairing of the Impact Measurement Working Group of the Social Impact Investment Taskforce under the G8 (2013 under Prime Minister Cameron). With more than 500 impact and financial performance metrics, IRIS is a first stop product for impact measurement.
3BL: Benchmarking is important to measuring progress, setting goals, and investment decisions. How do you set benchmarks for a new field of activity and what benchmarks have you developed?
AB: Most financial benchmarks compare performance among a group of similar individuals or businesses. There is still much work to be done to enable “impact” to be benchmarked in a similar way to that of financial performance. Three of the main challenges include: how to account for impact risk appetite, how to incorporate variance in contextual considerations, and how to enable comparable data sets. Related to this third area, the GIIN is the institutional home of IRIS, the catalog of generally accepted metrics, which enables investors to apply this concept to the social and environmental performance of their investments. IRIS allows comparisons between similar impact investments or portfolios of investments by ensuring that investors with similar goals or focused on similar sectors measure and manage their performance using a comparable set of standardized metrics. As more impact investors track and publicly contribute social and environmental performance information using common metrics and according to commonly understood goals, the dataset for impact grows. GIIN has also worked with Cambridge Associates to develop a benchmark on the financial performance of private equity/venture capital impact investing funds, as compared to similar funds with no impact intention. We are working on developing more of this research for other segments of the impact investing market.
3BL: Are there certain sectors (renewable energy, agriculture, etc.) where you find performance measurement more difficult than others? If so, how do you compensate for that and have you created customized measurements for different sectors?
AB: Sector does affect impact measurement, but it isn’t the main challenge. Many impact investors make investments aiming to benefit a certain population of people or the environment. A key challenge with effective measurement – irrespective of sector – is collecting actionable data about if and how the strategy is affecting the end beneficiary. Collecting this data includes working and aligning with the investee company, integrating with their existing systems, and aggregating to a portfolio level, to name a few implementation process points. For short-term debt investors, minority stakeholders, pension funds, or investors who are not directly investing, gaining access to data at this level can be a hurdle due to proximity, leverage, or other structural issues. Additionally, certain investments, such as those in real assets compound the challenge because of the indirect nature of their impact. Metrics in the IRIS catalog can be applied to all sectors and all asset classes. The usage guidance section is designed to help investors determine how to access this data from their investees, or work with proxies and assumptions.
3BL: Given your interaction with sophisticated and knowledgeable investors, do you think there are new products/investment structures that are needed to entice more investment in impact investing?
AB: We are working alongside investors to explore some of these structures now and, although it is too early to share any insights yet, we hope to share some of what we have learned later in 2017.
3BL: The GIIN is at the forefront of Impact Measurement. What are your goals and initiatives for 2017?
AB: The GIIN is committed to building a capital market where social and environmental performance is rigorously considered alongside financial return in investment decision-making. We share this aim with a number of other organizations and initiatives. In the coming year, we will be working with those organizations to coordinate efforts, improve coherence in impact measurement and management approaches, and ensure we are efficiently working towards our common goals. We will also be continuing to develop the IRIS catalog and other infrastructure for impact measurement.