Fund Buyer Index

Demand for insights on impact performance surges

Posted in Jan 2020
by Elena Johansson

As the sustainable market grows increasingly competitive, the vast majority of investors are lacking insights into impact performance that would enable them to differentiate themselves from their peers, a study has found.

The non-profit organisation Global Impact Investing Network (Giin) has released the second edition of its impact measurement and management (IMM) survey, in which it assesses IMM practice across the industry.

Giin’s director of IMM, Kelly McCarthy, commented: “The market is maturing rapidly and demand for more and better impact performance management is only increasing.”

The NGO surveyed a total of 278 impact investors between July and September 2019, with the majority of interviewees headquartered in developed markets (82%) and 16% in emerging markets.

Giin defines impact investors as those who invest with the intention to create positive social or environmental impact alongside financial return; use evidence and impact data in investment design; manage their impact performance; and contribute to the growth of the industry.

Among the survey respondents; 67% are fund managers, 9% foundations, 5% development finance institutions and the rest are other types of organisations.

Collectively, 275 respondents manage $246bn (€223.2bn) in impact investing assets, as of the end of September 2019. This represents almost half of the total global impact investing market, estimated at $502bn by Giin.

Lack of comparable performance data

The study found that most respondents use their own data to assess their impact performance (87%), but they lack comparable, market-level insights.

As the market matures and competition increases, the demand for insights on impact performance rises, Giin found.

A majority of 89% of investors cited a lack of transparency on impact performance as a key challenge facing the market.

They particularly look for market-wide impact performance data: most commonly impact benchmarks (92%), followed by pooled impact data (86%), case studies on IMM best practices (86%) and tools to strengthen impact screening (83%).

Existing benchmarking tools

The report also names a number of existing IMM tools, such as:

  • An approach described in Giin’s series Evaluating Impact Performance, which allows investors to aggregate and compare impact performance results;
  • A methodology called Impact Multiple of Money, designed by US fund manager TPG Growth and the Bridgespan Group, a US-based social-impact advisory firm, and others to estimate the financial value of the impact generated per dollar invested; and
  • Evidence-based benchmarks for investors developed by the World Benchmarking Alliance, a partnership organisation that benchmarks companies’ impact performance in terms of the UN Sustainable Development Goals.

Other key findings of the survey are

While impact investors pursue diverse impact objectives, they universally agree on the importance of measuring and managing impact results:

  • Impact data serves multiple purposes within a firm, advancing both impact and financial objectives;
  • Firms report impact to key stakeholders (98%);
  • they use IMM to capture business value (93%),
  • for marketing or fundraising (92%) and,
  • to address client demand with impact information (80%).

Another key finding is that, across the market, IMM practices have grown increasingly sophisticated as investors shift from building consensus for IMM to strengthening its integration within investment processes:

  • Respondents consider impact data during due diligence (81%),
  • investment screening (77%), and,
  • when identifying the social or environmental needs to address through investment (75%).

They also allocate IMM responsibilities to their investment teams (68%).

Additionally, impact measurement and management incurs some costs—yet also generates financial benefits:

  • On average, impact investors spend an estimated 12% of their organisation’s total budget on IMM-related activities, with the greatest share spent on data collection and reporting (24%).
  • But IMM also generates additional business value for both investors and investees. Respondents use IMM, related to their organisation’s financial strength, to communicate results to stakeholders (89%) and assess risk factors (45%).

Originally posted in Expert Investor Europe

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