The financial results of a portfolio’s various investments can be easily compared as the core metric is dollars earned, but comparing impact results is a lot more difficult. This is the challenge that the Global Impact Investment Network (GIIN) is trying to address with its new COMPASS methodology.
It aims to provide a standardised process for investors (asset owners and asset managers) to measure impact performance by distilling outcomes down to three core factors: scale, pace and efficiency.
The process unites both comparability (comp) and assessment (ass), to create the COMPASS framework. It’s recognised that, while outcomes will always be multi-dimensional, it is possible to assess projects on the three core performance factors, to then make a comparison.
Scale is an indicator of change over time. It’s a measurement of relative performance based on a baseline. Performance expectations can be set, and the ‘scale’ of progress can be measured.
“For example, investors may track the number of clients actively using responsible financial products and services, or the size of agricultural land under sustainable management, or the cumulative number of people newly accessing clean water in a given year.” According to the GIIN framework.
Pace measures an annualised ‘impact delta’. It represents the pace of change of a set of interventions or projects. This allows investors to benchmark performance relative to peers over a set time period, as well as the pace required to achieve a defined set of goals.
“For example, investors may track the percent increase (or decrease) in the number of people accessing clean drinking water since the previous year, which can then be compared to the rate of increase in access to clean drinking water required to achieve the targets laid out by SDG 6.1 (universal access to clean water) by 2030. This then indicates the extent to which an investment is making a material contribution toward a critical issue area.”
Efficiency measures the impact outcomes of one investment over another, across the same metric, in dollar terms. This will require an investor to assess the nature and nuance of an investee company’s business model, position in the supply chain and bargaining power.
“For example, one investment may increase access to clean drinking water by 100 people per year per dollar invested, while another may increase access by 80 people per year per dollar invested.”
On the whole, the aim of the framework is to develop capacity in the impact sector, to drive progress towards universal benchmarks and ratings.
To offer key investment decision makers the same capacity for insight into impact performance as they have for financial performance.