Invest
Things to consider when measuring impact investments
Impact investing has gained traction since more investors want to see measurable social and environmental results along with financial returns from their investments. But as this developing investment market grows, there is also a need to properly assess the different investments available for funding.
Things to consider when measuring impact investments
Impact investing has gained traction since more investors want to see measurable social and environmental results along with financial returns from their investments. But as this developing investment market grows, there is also a need to properly assess the different investments available for funding.
Since it can be difficult for investors to measure an entity’s social and environmental contributions by simply relying on investor reports, a number of tools have been developed to assess its overall value.
What do impact assessment tools measure?
In line with the goal of impact investments to produce both financial returns and measurable solutions, impact assessment tools measure an entity’s value based on its monetary and non-monetary returns— otherwise known as performance metrics. These are:
Financial measurement assesses the income generated by the investee, or return of investment for the investors, for each reporting period. This part of the investment is important because there are investors who prioritise financial returns over social impact.
Non-monetary returns are measured by qualifying and quantifying the investment’s social and environmental impact. This includes the potential impact opportunities, risks and the measures the investment entity plans to take to address or mitigate expected and unforeseen impacts.
By using the assessment tool developed by regulatory bodies, impact investors could learn to evaluate if their investments are underachieving or achieving the current market rate. Likewise, the tools would guide potential investors to differentiate between impact investments and investments that are merely being marketed as impact investments due to some positive results they produce.
Where to find effective impact assessment tools
There are many assessment tools available for assessing an investment’s performance. Investors may look into the overall assessment of their impact investment or compare their investment with other investments within its sector—either way, various assessment tools are available.
The best place to source credible assessment tools is from regulatory bodies and organisations that focus on benchmarking impact investments. These organisations look at a broader view of impact assessments. One such organisation is the Global Impact Investing Network (GIIN), which launched the Impact Reporting and Investing Standards (IRIS) initiative in 2009.
The IRIS is a cross-sector and sector-specific metrics catalogue designed to help investors evaluate and keep track of the results of their investments in a clear, credible manner. Likewise, investees benefit from the IRIS catalogue using the metrics as a guide to clearly document the results of their endeavours.
This way, both investees and investors speak the same language and see a clear picture of how the promised returns are being met.
Not-for-profit organisation B Lab also developed the ‘B Impact Assessment (and GIIRS Rating)’—a tool to assess an entity’s overall environmental and social performance using the Global Impact Investing System (GIIRS). This uses IRIS metrics, along with additional criteria, to grade investments in their performance.
Sector-specific metric reporting frameworks may also be used to analyse impact in the financial, land conservation, employment, healthcare and other sectors. It is worth noting that many of the accepted frameworks in specific sectors have been included in IRIS.
What to watch out for when assessing projects
In response to concerns and to better understand impact investments, the industry has developed the environmental and social impact assessment (ESIA) process to predict and evaluate a project’s potential impact(s) and actual performance.
It is important for all entities interested in becoming impact investment ready to develop their plan according to the ESIA guidelines because these reflect existing internationally accepted standards for good practices.
The ESIA guidelines consider all potential social and environmental impacts, whether intended or unintended, so that both investee and investors have a holistic understanding of the project and its impacts.
Investors should take note of the following aspects:
- Project description/objectives
- Timeline and management plan
- Expected and potential opportunities
- Expected and potential risks
- Proposed actions for mitigating impacts
- Proposed alternatives
Investors should consider how well a company is able to show their expected impact through ESIA guidelines and evaluate its performance using internationally accepted metrics.
This information has been sourced from the World Business Council for Sustainable Development, Global Impact Investing Network, Stanford Social Innovation Review and Nest Egg.
About the author
About the author
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
