Impact investing measurement is an essential part of impact investing. It ensures that the exits are sustainable and that the impact learning process is internalized. There are several common sense metrics that you can use, including Impact Multiple of Money, Impact Management Platform framework, and reporting to investee organizations. Identifying the best metrics for your investments will help you make the right decision for your portfolio.
1. Common sense metrics
Common sense metrics for impact investing are important tools to use when evaluating your investment decisions. These metrics should give you the information you need to make an informed decision and also provide opportunities for learning and improvement.
They should also strengthen the performance of your investment strategy and portfolio. The impact investing community has created Core Metrics Sets based on evidence and best practices that help investors make sound investment decisions.
Impact measurement practices often rely on accounting principles and common sense. These metrics can be easy to calculate and can help guide investors in making the right investment decisions. For example, many investors use information straight from enterprise balance sheets when evaluating an impact investment.
Others rely on gut instincts and assumptions to make a decision. For example, they may assume that if the impact investing project helps the environment, it will increase job creation or increase revenue.
Investors often prefer a more expansive portfolio when evaluating impact investing, in order to build a broader network and diversify their investments. In addition, a wider portfolio will help an impact investor become more nimble in the market. Using multiple forms of evidence also helps investors better understand the systemic impact of their investments.
2. Impact Multiple of Money
A new approach to assessing social impact in investing is the Impact Multiple of Money (IMM). This measure utilizes social science research to calculate the impact potential of a company before investing. It is an evidence-based approach that measures social value by estimating the benefit of every dollar invested. The IMM has been hailed for its transparency and consistency.
The multiple of money methodology takes six steps and requires assumptions that have to be carefully considered before making an investment decision. The first step involves determining the number of people affected by the investment. The second step clarifies the social and environmental outcomes of the investment. This step is followed by adjusting for risks. The final step is to estimate the "terminal value" of the program or service.
3. Impact Management Platform framework
The Impact Management Platform (IMP) is an industry-standard framework for impact investing measurement. Its signatories pay a one-time registration fee based on their assets under management, and agree to publicly report impact data annually. They also commit to submitting impact data to an independent verification agency. The IFC calls this commitment to transparency and accuracy of information "a key feature of the Impact Management Platform."
Impact measurement benefits the impact investing community as a whole and is critical to institutionalising transparency and credibility. In fact, in a recent GIIN survey, ninety percent of respondents said that a lack of sophistication in impact measurement was a major barrier to growth. Ultimately, impact measurement will help to increase deal flow and participation in the impact investing industry. It will also help to provide useful insights at every stage of the process.
The IMP was developed by thought leaders and solution providers to help the impact investing industry make sense of impact measurement and reporting. The Impact Management Project convened over 2,000 stakeholders to develop a framework for impact investing measurement.
In addition, the International Finance Corporation of the World Bank collaborated with multiple stakeholders to develop principles to embed impact considerations across the investment life cycle. After these efforts, GIIN replaced its catalog of metrics with IRIS+, a comprehensive end-to-end system for impact investing measurement.
4. Reporting to investee organizations
Several factors should be considered when reporting to investee organizations when measuring impact investing. First, the impact investor must be clear about the impact they are expecting from the investment. Secondly, the investor should be clear about what metrics the impact investor is looking for. If the impact measurement is only a matter of measuring the financial performance of the investment, it may not be the right priority.
Third, impact investors can leverage the expertise of existing academic and research institutions to measure their impact and contribute to the learning agenda. Examples include the GBP 10 million bond issued by the United Kingdom non-profit Golden Lanes Housing, which provides adapted housing for learning disabled people.
This bond was backed by investors and returned 4% of its value to the investors. Another example is the investment made by Sarona Asset Management, which provides growth capital to small enterprises in developing and frontier markets.
Final Words
Another important factor is the expected return. Investors must assess whether their investments produce positive social and environmental returns. The social return on investment framework provides a framework for measuring impact.