2020 Impact Investment Trends
The Increasing Adherence to Impact Measurement and Management
Written by Brady Press
We are barely into 2020 and a lot has already happened in the world of impact investing. Over a series of articles, we are identifying some of the key trends we see for the coming year.
In this article, we take a look at current trends and challenges in measuring impact investments, and what they mean for the current impact investing ecosystem.
The State of Impact Measurement and Management
One of the main reasons often cited for limiting the growth of impact investing is the lack of standardized measurement systems for social and environmental impact across sectors. This need is not lost on current impact investors, as noted in the GIIN’s second report on the state of impact measurement and management practice:
“Yet no matter their impact objectives and target sectors, themes, or stakeholders, impact investors value impact management and measurement (IMM) for both impact and business reasons. Nearly universally, respondents said that IMM is important for understanding whether they are making progress toward their impact goals (100% indicating ‘very’ or ‘somewhat’ important; Figure i), improving their impact performance (99%), and proactively reporting impact to key stakeholders (98%). Interestingly, a significant share also cited IMM as a key process for capturing business value (93%), marketing or fundraising (92%), and addressing client demand for impact information (80%). Together, these various motivations highlight how impact data serve multiple purposes within a firm, advancing both impact and financial objectives.”
But concerns around measurement consistency exist, notes Anne Field of Forbes in her recount of the GIIN report:
“The findings also show that work still needs to be done, however. For example, while impact investors are beginning to coalesce around certain IMM tools and frameworks, such as the Sustainable Development Goals (SDGs) — use of the SDGs has almost doubled since the first survey — they’re concerned about a surfeit of tools and frameworks out there. Plus, investors still struggle to compare impact results across the market. In particular, they point to a lack of transparency on impact performance as a major challenge.”
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Regarding the uptick in impact measurement and management practice, the response from investors is clear (also from The GIIN’s report):
“As investors look to strengthen their IMM practice, they are demanding resources aligned with their call for market-wide insights into impact performance, most commonly impact benchmarks (92% citing as ‘very’ or ‘somewhat’ important; Figure iii), pooled impact data (86%), case studies on IMM best practices (86%), and tools to strengthen impact screening (83%).”
We think 2020 will see further advancement in adherence to impact measurement standards from the sector to move forward and grow as an industry, as summarized in this article from The Investor:
“As impact investing starts to gain more traction among investors, greater benchmarking of its performance is now needed for it to attract more capital in the coming years… While some existing benchmarks on both Environmental, Social and Governance (ESG) pillars and sustainability ratings are giving investors more overview of the environmental impact of their portfolios, this is only the start. There’s more need for greater transparency so that investors can have confidence in the ability of platforms to generate the impact and the returns they seek.”
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A New Approach to Impact Measurement
Even though there is a need to adopt measurement standards, innovators are still looking for ways to use tech and other methods to improve measurement systems. In particular, predictive impact measurement arises as a method.
In contrast to measurement approaches like IMM and AIMM that use older methodologies like social returns on investment, predictive impact analysis measures the potential impact of an investment before it is made. Below, the article explains the realities of adopting impact measurement and its benefits:
“Predictive impact analysis is not the answer to everything. It will not ensure that every investment achieve its objectives. It does, however, provide a tool to more effectively allocate resources, and, if fully utilized, could save a huge amount of funding (and thus increase impact). And though this methodology depends on a level of analytical rigor and continual monitoring that may not be accessible to all investors and social impact organizations at this time, the shift in mindset is one that most organizations can adopt, towards both quantified impact and forward-looking measurement.
When this shift in mindset happens, the benefits will be felt at scale. Predictive impact analysis creates an opportunity to share the burden of impact measurement. Rather than making measurement the responsibility of resource-strapped organizations, investors would take on the analysis as part of their due diligence process, leaving social impact organizations to focus on monitoring, which simultaneously enhances their operations, and allowing research organizations to fill gaps in intervention-specific evaluations. Each actor is internally incentivized to incorporate measurement in this way, thereby increasing the likelihood of data utilization by all parties.”
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Consistency Remains a Challenge
While the continued growth and diversification of the impact investing space seems inevitable, more consistent reporting measures and adoption of existing measurement standards is key to sustaining the industry. Regarding predictive impact analysis, more case studies are needed to inform this approach. Without standardization, investors will not be able to compare results across the market and impact investments will not reach their full potential.
Brady Press is an Associate Director at Changing Our World, where she specializes in building strategic corporate citizenship programs. She is a consultant to SDGCounting and StartingUpGood, and is currently researching how COVID-19 is affecting the Sustainable Development Goals.