Counting what matters
Impacts must be properly identified, verified and priced, to know what is working and for investments to be effective.
According to a 2017 GIIN survey roughly $114 billion in assets are invested for impact (managed by 208 leading impact investors). The market for global sustainable investments is even greater, with Global Sustainable Investment Alliance reporting this reached $22.89 trillion in 2016 — an increase of 25% from 2014.
The category of assets identified as ‘Impact Investments’ only tells part of the story. Sustainable investment vehicles such as “green” bonds, which provide debt for Climate, help to finance projects in renewable energy, energy efficiency, and wastewater treatment. These investments totaled $155.5 billion by the end of 2017. From these examples, it is abundantly evident that the tide is rising on sustainable financing of all types.
With the increasing interest and investment into sustainable development impacts around the world, now more than ever, there is a need to know whether these investments are achieving the results that are expected. For this, we need high-quality, verified impact data.
Impact Data fuels the Impact Economy
A key differentiator of impact investing from other investment strategies is the commitment of the investor to measure and report on the social, environmental and economic performance of their investments — which requires verified impact data.
Investors pay for impact data as capital allocation decisions must be based on reliable information. As with any investment process, it is important to have meaningful data and the right tools. Higher-quality, verified impact data has more value, which will continue to appreciate as data-driven investments yield higher results and reduce investment risks.
Reliable measurement and reporting of impact data ensures accountability and transparency, which elevates trust. All impact investments should use verified impact data to prove that value has been delivered, with evidence for results, and to improve how impacts are achieved. Verified impact data should also reduce inequalities and injustices by ensuring that the right goods and services are delivered to the right beneficiaries in the correct manner.
But verified impact data is a scarce resource
Until now, it has not been technically or economically feasible to produce, measure and value impact-related and sustainability data at scale, in ways that are cost-effective and useful.
There are a variety of impact measurement frameworks, metrics and guides provide both industry-level and sector-specific tools for impact measurement and reporting, such as IRIS, the catalogue of generally accepted social and environmental performance metrics used by the majority of impact investors. However, according to the 2017 GIIN Survey, roughly a year after the launch of the UN Sustainable Development Goals (SDGs) in 2015, only 26% of respondents track some or all of their impact investments with respect to the SDGs.
Another third plan to do this in the near future. These findings demonstrate a growing commitment towards measurement and reporting relating to the 169 targets and 230 indicators of the 17 Global Goals. But there are big gaps in implementing measurement and reporting, based on common standards.
Most respondents in the GIIN survey use proprietary metrics or frameworks (75%), qualitative information (65%), or IRIS-aligned metrics (57%).
Impact measurement is a mess.
Without standardized methodologies for capturing, measuring and evaluating impact, data gets locked in silos of proprietary indexed databases. This lacks comparability, interoperability, or ways of avoiding aggregation errors, including double-counting. In traditional databases, data are fungible. Data fidelity and provenance are difficult to establish, so we don’t really know when datasets have been tampered, corrupted, or originated from untrustworthy sources.
Achieving the sustainable development goals demands embracing the data revolution (UN Secretary-General, 2014)
Converging information technologies including blockchains, the decentralized web, connected sensors and AI can revolutionize how impact data gets collected, verified, valued and shared. This can provide rich data for sustainable development.
Evaluation of impact-related data has been a costly process. At least 5–7% of development funding is typically spent on independent evaluations and audits. Evaluations of more complex results-based financing mechanisms, such as Social and Development Impact Bonds, can cost up to 30% of the fund value. And this excludes the ongoing costs of data collection, administration, storage and security.
In the voluntary carbon credit market, transaction costs can be even higher — on average, it takes more than 2 years for a project to become certified and start generating carbon credits. Skilled evaluators act as trusted intermediaries that are in short supply and their evaluation methods are not easily scaled.
This is a compelling market opportunity
We believe that it is now feasible to grow a fast-scaling, decentralized marketplace in which verified impact data is produced and traded through networks, using blockchain information infrastructures for coordinating, incentivizing and governing data-sharing.
With high-performance computing and machine learning becoming pervasive, software-augmented evaluation mechanisms will become commonplace. New algorithmic evaluation agents can be implemented using consensus-based validation mechanisms that include economic incentives. Software oracles can bring together multiple sources of truth from different data sources to perform intelligent evaluations that will yield powerful new insights.
New methods for measurement, verification and reporting are now technically feasible. For instance, a photovoltaic renewable power project in Thailand will have solar panels connected to digital meters with secure microprocessors (made by Weeve) that generate cryptographically secured claims about the energy generation, in real-time, to project data stores that are secured by the ixo blockchain. Verification of these claims using Gold Standard certified methods will be automatic and almost real-time. This will dramatically reduce the costs and time to generate and trade carbon credits.
This data can also be used for research and to optimise decision-making. It can be shared with data from other similar projects, indexed on the ixo Global Impact Ledger, to provide big datasets of structured, verified data.
Data resources will become locatable across any data store, using content-addressing, based on the Interplanetary Linked Data (IPLD) specification. The quality of these datasets will improve through the economic incentives and coordination capabilities of curation markets.
Verified impact data will become abundant.
ixo is developing mechanisms to share datasets through software-mediated governance mechanisms, interfacing the ixo Protocol with the Ocean Protocol to create incentivised and compliant data marketplaces.
Within the next 10 years, we believe scarcity of verified impact data should no longer be a problem with the technologies available. Now we need to ensure that this abundance provides the best possible quality of high-definition impact-related data, accessible through an impact data commons for the world to optimize how impacts are achieved with standardized metrics to achieve our goals for the future.
Join the Community
Learn more about ixo and how to get involved at ixo.foundation