The Dawn of Impact Investing

By 2008, the impact management field was beginning to stand on steady ground:a common lexicon had developed, impact goals were more explicitly laid out, many feasible and credible impact management strategies-- found in the Catalog of Approaches to Impact Measurement -- had emerged, and a diverse group of investors had taken a keen interest in the impact field. This group, having convened in 2007 with the Rockefeller Foundation, represented “institutions managing trillions of dollars and [wielded] significant influence on the economy.” Realizing the strength of their influence, they dubbed themselves “impact investors” and launched into the impact field to “invest with the intent to achieve not only financial returns but also better environmental and/or social outcomes than would be the case in typical investment.” What could be better than saving the world and making a little coin in the process? However enticing, this idea came packaged with some tough questions:

  1. How can investors know whether they are helping or hindering progress toward an environmentally sustainable, healthy, and dignified economy and world?

  2. How does a portfolio company’s pursuit of their goals affect financial and impact risk, as well as financial returns? 

  3. If there is an added cost associated with pursuing impact, what approach can be used to assess whether it is “worth it?”

Published in 2008, the Catalog of Approaches to Impact Measurement highlighted 25 impact management approaches that impact investors could use to answer these questions. The approaches outlined in the Catalog can be organized broadly by functional type: rating systems, assessment systems, and management systems:

Rating Systems: These systems include a fixed set of indicators that assess an impact investment’s quality or potential quality, and impact is typically  summarized by a score or symbol. Generally, if an organization, firm, or business chooses to certify their intended and realized impact, their operations, governance, environmental protection, empowerment, worker protection, etc. is tracked to see if they satisfy the criteria necessary to earn such a certification. There are only three non-hybrid rating systems in this catalog: The Fair Trade Certification, the Leadership in Energy and Environmental Design Certification (LEED), and the Movement Above the US $1 A Day Threshold Project. For example, for a building to earn LEED certification, an organization needs to complete a checklist “in areas such as site selection, water use, energy efficiency, materials and indoor air quality, waste management and others.” However, most rating systems are also partly assessment systems.

Assessment Systems: These systems assess or evaluate characteristics, practices, and/or results of the portfolio company’s impact.  Only eight of the 25 approaches —Development Outcome Tracking System, Environmental Performance Reporting System, Progress Out of Poverty Index, Real Indicators of Success in Employment (RISE) and Ongoing Assessment of Social Impacts, Social Value Metrics, SROI Analysis, and the SROI Calculator—are strictly assessment systems. 

However, eight other approaches, B Rating System, Charity Analysis Tool (CHAT), Compass Assessment for Investors, Dalberg Approach, Ecological Footprint, Human Impact + Profit (HIP) Framework, Political Return on Investment (PROI), and Social Rating are both rating systems and assessment systems. These hybrid approaches both provide an organization a certification for reaching certain impact goals and the tools to measure and assess the company’s impact (i.e. these tools may show that a company may have an excessive carbon footprint that can be reduced, but has a great social outreach in the neighboring community). Though useful, these systems do, “not provide explicit tools to manage the tracking of operational data by the organization over time.”

Management Systems: Management systems provide tools for organizations to manage detailed operational information about drivers of impact. These approaches both assess and help manage impact. While there are five management system/assessment system hybrids—Trucost, SROI Toolkit, SROI Lite, and SROI Framework—there is only one exclusively management system-like approach in this catalog: the Balanced Scorecard Modified to Include Impact. The Balanced Scorecard measures “social impact, constituents, internal processes, learning and growth, and financial,” as the major categories by which impact is measured, assessed, and managed. 

According to the Global Impact Investing Network (GIIN), there are over USD 502 billion in impact investing assets worldwide, which suggests that impact investing, measurement, and management has become a significant force in the global economy. As society becomes increasingly conscious about the interconnectedness of business and society and environmental impact, the more investors will take the societal and environmental consequences of their investments into account. Though those initial questions are still pertinent, impact management groups, like SVT Group, Impact Management Project, and GIIN have guided others through this complex field and continue to do so as impact management more complex and more difficult to understand.