Investment Notes

Impact Measurement

January 29, 2020
Matthew Tominc By Matthew Tominc

The Impact Fund exists to create positive social or environment benefit through our investments. We can only manage the impact that we can measure. So it is essential that we have a thoughtful approach to impact measurement.

Impact measurement is however a relatively nascent sector. Measurement practice is evolving — with an alphabet soup of acronyms and approaches being thought up globally by some very smart thinkers. The world hasn’t yet progressed to a widely accepted impact investment framework (such as GAAP in the accounting world) for measuring impact, although there are widely used frameworks. We want to leverage the best of current thinking and conform with global best practice, but also ensure that we practically complete impact measurement in the right way for our investments.

This article isn’t a review of the numerous global approaches to impact measurement (which will come later). Rather, we’ve written it to achieve two things:

  1. Provide a high-level introduction to how we practically conduct our impact measurement
  2. Reiterate our desire for everybody engaging in impact measurement to focus on (1) accuracy, (2) authenticity and transparency, and (3) pragmatism

As the impact investment industry becomes more mainstream, thoughtful and accurate measurement becomes more important than ever. Investors must be clear about their impact investment thesis and define relevant metrics of measurement. They should be transparent and hold themselves to a high level of accountability when measuring their impact, which includes assessment of potential unintended adverse consequences from an investment. They shouldn’t, however, let the challenges of impact measurement stall investment and the creation of great social or environmental impact.

So how do we measure impact?

To achieve these aims, our impact measurement process has three-steps:

  1. Quantitative metrics: We’re more likely to manage what we choose to measure. When we make an investment, we select thoughtful and relevant metrics that we will measure. We cross reference this to global third party frameworks (we use the GIIN’s IRIS+) so that our investors can aggregate their impact at a portfolio level, and ensure from the outset that the data we need for measurement will be readily available. For example, if we make a solar investment, we might choose to measure megawatt hours of renewable energy generated, or tonnes of atmospheric carbon avoided.
  2. Independent verification: We obtain independent assurance of our impact metrics, ensuring we have objective and experienced third-party auditors review the quantitative impact metrics we prepare. We want to report our impact to our investors with the same level of independent oversight and confidence as a company reporting audited financial accounts.
  3. Assessing outcomes: Moving beyond quantitative metrics, we also consider the outcomes of our investment. For example, we might easily measure and verify the number of beds of affordable housing we build, but we must ask ourselves — what is the actual impact of building affordable housing on our society?

At this point, impact measurement becomes more ambiguous. We conduct thorough research and consider any adverse consequences of our investments. Ultimately, however, these considerations are subjective and move beyond scientific measurement and into experienced judgement. This is the great challenge of impact measurement. The most important point — assessing outcomes — is also the hardest and cannot be easily distilled into simple and consistent metrics. Ensuring we are focused on positive outcomes (and the risk of unexpected negative outcomes) during our investment diligence is very important.

To best achieve this aim, we focus on transparency. We have open and targeted conversations with our investee assets and other stakeholders about what we want our capital to achieve, and the barriers they see to this. We have detailed discussions with our investors, and have made available our internal investment papers (which include full considerations of impact risks and our view of outcomes) so together, we can speak authentically about the outcomes of our investments.

There are no doubt heightened expectations associated with impact investing. We don’t have the silver bullet for measuring impact, but our view (and we hope the progress of the industry over time) is that by being transparent about outcomes — which is what ultimately matters — we can harness the power of our full set of stakeholders to have the biggest impact.

As impact investors, we are dually focused on the generation of stable and strong returns for our investors, but also seeing that our investments are helping to create and influence positive change. This makes impact measurement integral to the value add of the impact investor, and ensures as impact fund managers that we continue to be held to a high standard.

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