Measuring the Impact of Impact Investing

As many as 97-percent of investors agree that the difficulty of measuring impact has been a key barrier to the growth of the impact investing industry. We provide guidance on how you can measure impact and properly assess the risk associated with your investment.

How do I know the results will align with impact investing standard-setting bodies?

Our work supports the implementation of rigorous impact investing practices, informed by current industry knowledge, and aligned with a range of standard-setting bodies:

  • We use the UN Sustainable Development Goals to align the impact of our clients’ diverse portfolios to critical global priorities.
  • All of our impact measurement and management frameworks are aligned to the Impact Management Project and the IFC Operating Principles for Impact Management.
  • We are also well informed about other industry principles and tools (e.g., IRIS, GIIRS, SASB) and apply them based on client needs and context (e.g., using SASB to assess ESG materiality of client investments).

How do I evaluate the social or environmental impact of my investments?

We have developed a range of qualitative and quantitative approaches to track progress toward your impact goals. These core principles inform all our evaluation approaches:

  • Use quantitative evidence to assess impact potential. We use economic, scientific, and social science research to estimate a company’s impact potential.
  • Assess impact potential in due diligence. We assess impact of companies during live diligence, elevating it to be on par with estimates of financial return. We also evaluate the risks to achieving impact and craft relevant mitigation strategies.
  • Manage impact during ownership. We help identify key performance indicators to track and manage impact on an ongoing basis during holding and/or at exit.

How does impact assessment fit with my existing due diligence?

We believe that core aspects of impact assessment fit well within the standard diligence process. The same underlying estimates of the company’s output and operations drive both financial and social returns (e.g., number of units sold, number of users reached, revenue projections). The impact assessment process should match the decision-making style of the firm. (e.g., qualitative vs. quantitative, consensus driven vs. top down, etc.)

What is the Impact Multiple of Money and how does it work?

The Impact Multiple of Money is a methodology designed to bring the rigor of financial performance measurement to the assessment of social and environmental impact. Bridgespan Social Impact and The Rise Fund, a $2 billion impact investing fund managed by TPG Growth, developed this approach. The methodology estimates—before any money is committed—the financial value of the social or environmental good likely to result from each dollar invested.

How can I mitigate the impact risks of a prospective impact investment?

Impact risk is the risk that your investment does not achieve the expected social or environmental benefits, despite meeting promised financial returns. Just as you can address and manage for financial risk, however, it is possible to do so with impact risk. During due diligence, this might include identifying possible risks, assessing probability of occurrence, and working with important stakeholders to limit these risks. We work with you to identify suitable risk-mitigation strategies, which may include writing mitigation strategies into an investment contract or creating an impact covenant to outline enforceable obligations to maximize the positive impact of an investment.

Can impact measurement continue after I have made the investment?

Your impact journey continues after investment. We can help you both develop a process and select key performance indicators for measuring impact throughout ownership, letting you track and manage the impact of portfolio companies during the holding period in much the same way that you manage assets to increase their financial value. Fund managers can also regularly communicate the impact results of their holdings to limited partners as well as to the public. Impact measurement during the holding period is one of the next frontiers of better impact practice.

How should I share the impact results of my portfolio companies with limited partners (LPs) and the public on an ongoing basis?

We recommend sharing impact results with LPs annually, and we can help by developing templates for this report tied to your overarching impact-measurement methodology. Public companies can share impact results along with regular financial reporting (e.g., annual company meetings or shareholder reports). Private companies can use their discretion to provide a public, high-level impact narrative.

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