AEA365 | A Tip-a-Day by and for Evaluators

Mar/17

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SIM TIG Week: Working Together: The Impact Investing and Evaluation Communities by Kelly McCarthy

My name is Kelly McCarthy and I am the Director of Impact Measurement & Management at the Global Impact Investing Network – or GIIN – a nonprofit whose purpose is to increase the scale and effectiveness of impact investing.  While we don’t make investments ourselves, we work alongside those who do, along with many other actors seeking to advance impact investing practice and channel more capital to generate positive social and environmental outcomes.

Impact measurement and management (IMM) is core to effective impact investing

Though I am a new entrant to the AEA community, I share the same aim as many others in this forum: To collaborate with those who strive to advance sound IMM and evaluative practices to drive more effective decision-making. In our case, decision-making anchors on using social and environmental data to inform the allocation of investment capital and optimize the potential for it to deliver positive social and environmental results. One way we do this is through our oversight of the publicly available IRIS catalog of social and environmental performance metrics developed with input from evaluation professionals and investment practitioners. Other such ways include working with funds around the world to deepen the IMM  capacities of their teams and supporting the growing profession of impact analysts in the financial sector.

To further this aim, as other contributors this week have highlighted, one important focus area for 2017 will be deepening meaningful connection (and action) points between the impact investment community and evaluators and other IMM stakeholders.

Action 1: Translating Existing IMM Practices for Investors

Impact measurement and management often engages diverse implementing stakeholders from a variety of disciplines, including impact analysts, evaluators, and impact investment strategists and decision-makers. As a result a large number and diversity of industry and proprietary IMM approaches (frameworks, ratings, and methodologies) has emerged. From the perspective of many impact investors, this creates confusion, is viewed as lack of consistency in the market, and presents a barrier for effective use of IMM in general.

As a very first step to address this challenge, we are developing a publicly available “map” of existing credible initiatives, methodologies, and assessment tools which are currently in use by – or can be translated to – the investment context  (e.g., due diligence, metrics selection, etc.). We welcome you to join the GIIN in these initial efforts to deepen understanding of the appropriateness of different methods for impact investing.

(click for larger image)thursday-chart_how-social-enviro-performance-is-measured_giin-2016-survey

If you or someone you know is interested in contributing to this effort, please reach out to kmccarthy@thegiin.org

Rad Resources:

 

For more information about AEA’s SIM TIG, see here. To join the SIM TIG, see here.

The American Evaluation Association is celebrating Social Impact Measurement Week with our colleagues in the Social Impact Measurement Topical Interest Group. The contributions all this week to aea365 come from our SIM TIG members. Do you have questions, concerns, kudos, or content to extend this aea365 contribution? Please add them in the comments section for this post on the aea365 webpage so that we may enrich our community of practice. Would you like to submit an aea365 Tip? Please send a note of interest to aea365@eval.org. aea365 is sponsored by the American Evaluation Association and provides a Tip-a-Day by and for evaluators.

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3 comments

  • Jindra Cekan · March 6, 2017 at 2:23 pm

    Hello – thank you for sharing a window on impact investing…. So the impact metrics, at least on the Lyme example look like outputs and outcomes to me… not the longitudinal impacts that evaluation can aim for. Would be delighted to add a measure of sustained impact to GIIN.

    More here on how we can do that: http://valuingvoices.com/leading-in-challenging-times-sustained-and-emerging-impacts-evaluation-seies-reposted-from-medium-com/ and here on how a social investment firm in South Africa works with their clients here: http://valuingvoices.com/towards-responsible-donor-exiting-strategies-and-practices-reblog-from-tshikululu/
    Warmly, Jindra

    Reply

  • Rick Davies · March 3, 2017 at 1:05 am

    1. Please explain the acronyms in the graphic.

    2. Re proprietary metrics, how can any assessments made using such measures be independently audited/assessed?

    Reply

    • Kelly McCarthy · March 9, 2017 at 10:15 am

      Dear Rick,

      Thank you for your questions.

      1. Acronyms:

      The tools listed in the diagram are the ones most commonly cited by impact investors per the “GIIN and JP Morgan Chase & Co’s Annual Impact Investor Survey 2016” cited above to help understand the current social and environmental performance of their investments, and make strategic decisions. The

      1) IRIS – IRIS (iris.thegiin.org) is the catalog of social and environmental performance metrics. IRIS metrics are used by impact investors to measure the social, environmental and financial performance of an investment. IRIS is managed by the Global Impact Investing Network (GIIN) (www.thegiin.org), a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. 

      The GIIN offers IRIS as a free public good to support transparency, credibility, and accountability in impact measurement practices across the impact investing industry.  IRIS was officially launched in 2009 and jointly managed by The Rockefeller Foundation, Acumen, and B Lab, which began development of IRIS in early 2008 with technical support from Hitachi, Deloitte, and PricewaterhouseCoopers.

      2) GRI – GRI or the Global Reporting Initiative (www.globalreporting.org) – is an international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others.  GRI is well know for its global standards for sustainability reporting. They feature a modular, interrelated structure, and represent the global best practice for reporting on a range of economic, environmental and social impacts.

      3) GIIRS – GIIRS Ratings (b-analytics.net/giirs-ratings) are rigorous, comprehensive, and comparable ratings of a company or a fund’s social and environmental impact. GIIRS is a product of B Lab. 

      4) SASB – The Sustainability Accounting Standards Board (SASB) (http://using.sasb.org) is an independent 501(c)3 non-profit. It is most well known for its sustainability accounting standards designed to help public companies disclose material sustainability information to investors.

      QUESTION 2. Re proprietary metrics, how can any assessments made using such measures be independently audited/assessed?

      To answer this question, it’s important to provide context about investor motivations for using such metrics:
       
      While impact investors commonly agree on the importance of using social and environmental performance information for decision making, there is not yet consensus on precisely what information is most material, what level of measurement is appropriate for a given strategy or investment, or how such information should be used throughout the investment management process. 
       
      Some impact investors develop proprietary systems because they have not yet found a fit-for-purpose approach or set of metrics that meet their needs. Indeed, the diversity of such systems and variation in metrics creates a very real challenge for validation and assessment. It also creates a challenge when trying to make performance comparisons within a sector or issue area, when trying to understand broader scale change, or when trying to align expectations with co-investors or with investees. 
       
      One trend we’ve been following with interest are those impact investors who develop proprietary systems and metrics under the consult and/or in partnership with an outside independent party with relevant expertise. For example, they may work with a team of issue experts, evaluators, social scientists or a combination of several disciplines. For these investors, we’ve seen instance where they also build into their impact measurement and management practice regular and independent assessments to support the ongoing monitoring of the investment. One challenge, we are aware of however, is the lack of audit firms that feel equipped to validate such data. This point relates in many ways to Sara Olsen’s call for training the impact analyst to “read” such impact investing performance data.  Too little attention has been paid to the skill sets of analysts who can examine impact data and draw sound conclusions that compare performance within or across portfolios.

      Standards, guiding principles, clusters of norms or conventions are currently under construction and a variety of stakeholders have communicated a demand for these types of supporting infrastructure. Early efforts to standardize social and environmental performance metrics provided a sense of direction but also exposed a multitude of issues about how measure, select metrics, collect data, analyze that data and communicate relevant information. It’s become clear the practice manifests itself differently for impact investors than it does for the public sector. For example, one distinction is that impact measurement and management is relevant throughout the investment cycle, not only as a summative analysis at the end of an investment. The Impact Convergence conference held last year prior to AEA exposed such a variation in practices. 

      Further to the point about fit-for-purpose approaches: The impact investing community is struggling to better align expectations for the investment – be it by asset class, investor type, debt vs. equity, by outcome, by stage of the investee company, by magnitude of the problem to be addressed, by beneficiary needs, or a myriad of other decision factors – to their informational needs. One of the outstanding questions which is currently under discussion is: How standard or tailored should the system and metrics be to the investor, investee, and beneficiary situation to provide the right type of data to enable the investor to proceed with their investment strategy?

      The perceived and real gaps in availability of such systems and metrics are actively being explored and addressed through several multi-stakeholder efforts currently underway. For example, current efforts by the OECD (www.oecd.org/sti/ind/social-impact-investment.htm), Donor Committee for Enterprise Development (DCED) (www.enterprise-development.org/measuring-results-the-dced-standard), Impact Management Project (www.impactmanagementproject.com), and the GIIN (iris.thegiin.org/metrics/sets) continue to seek ways to connect these fields and pave the way for stronger evidence development that reflects the contexts of impact investing. The “map” mentioned in the article is one way of clarifying such approaches and helping guide investors toward the well-established and credible systems and metrics that may already exist. 
       
      In summary, in no way is there a claim the impact investing community has impact measurement and management “figured out”. Further, it is premature to expect that impact investing writ large will have a consistent practice of independent audit along the lines of accounting standards.  Rather, an increasing consortium of field-building stakeholders are developing processes and practices that will insure that reporting and use of results are as credible as reporting and use of finance results in decision making.  And, indeed there is an urgency to expedite the process in order to assuredly unlock more capital to the world’s greatest challenges. This only underscores the need for deeper collaboration between diverse but complementary disciplines.

      Reply

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