The majority of impact investors do what they do because they want to have a positive impact. That may sound glib, but it’s important to be clear that this label carries with it a clear intention, but measuring success around impact outcomes is still difficult.
The Global Impact Investing Network (GIIN) has been at the forefront of impact measurement for more than a decade, and that work continues with a series of reports titled: Understanding Impact Performance.
“If we are going to move investment capital at the scale needed for the environmental and social crises of our time, it is essential that we have a sophisticated understanding of impact performance. Aspirations and anecdotes alone are not going to be sufficient; we need markets to focus on real-world outcomes for people and planet.” says Amit Bouri, CEO of the GIIN.
At a high level, they want to empower investors to compare their progress with peers, across specific impact factors. And as they zoom in, they offer specific practices to improve the measurement process itself. Unsurprisingly this focuses on the GIIN’s IRIS+ system for impact measurement, and the COMPASS methodology for comparing and assessing impact.
With better tools, investors will be able to better allocate funds to drive the outcomes they’re targeting.
Climate Change Mitigation
Despite the progress of all citizens focussed on reducing carbon emissions, global temperatures have risen 0.2°C per decade. We know the IPCC has stated we need to keep global temperature increases below 1.5°C, but still temperatures are rising.
For investors who are on the journey, it’s not enough to measure their own progress in reducing emissions, they need to have a target for reaching the global goal.
The GIIN’s research has shown that while investors decreased their emissions by 6.4% per year, they still have a way to go to reach the target of -7.6% annual decrease in emissions required to meet the IPCC threshold.
Reducing emissions is the most immediate goal, but at the same time we must also address the need to drawdown the emissions that are already in the atmosphere.
We need to shift from coal-fired power to renewables, but we also need to find ways to sequester the CO2 that centuries of industrial pollution has added to the atmosphere.
The GIIN report suggests that nature-based solutions sequestered 3.2 million metric tons of emissions on average each year. This is mainly delivered by forestry and agriculture projects, supported by impact investors.
Quality Jobs Investments
A great challenge of building an impact portfolio is being specific about the outcomes you’re seeking. The GIIN’s Understanding Impact Performance report series recognises that different thematic areas will require a different impact approach, and they’ve reflected this through doing separate reports.
Investing with the goal of generating ‘Quality Jobs’ is difficult to do, and measuring it is no easier.
The report identified investors have supported quality jobs mainly through investing in food and agriculture firms, at 36%, followed by financial services at 20%, and microfinance at 15%.
It reported that there’s be an 18% increase in training opportunities for full-time permanent staff at portfolio companies from the impact investors surveyed.
Looking through a gender lens, the gender wage equity ratio was 0.95 across the full sample of investors who had policies focused on reducing discrimination and harassment.
In terms of performance, it seems a focus on investing in quality jobs can help deliver returns with 70% of investments meeting or exceeding financial performance expectations.