Greetings fellow Evaluators. I am Reagan Ronald Ojok, from Uganda Development Bank Limited. I recently read about the Rockefeller Foundation’s 2007 Bellagio Conference where the term Impact Investments was first coined. This coincided with a survey by IISA. The industry has since grown and continue to expand globally. The Global Impact Investing Network (GIIN) defines impact investing as the investment made with the intention to generate positive, measurable social and environmental impact alongside financial return.
The GIIN estimates the current size of the global impact investing market to be $502 billion, categorized as: endowments, high net-worth individual, foundations, institutional investors, and retail investors that invest capital directly in social enterprise and instruments (UNDP brief).
How Impact Investments work. Impact Investors aspire to inspire demonstrable positive results and a financial return. It is not only limited to a sector and can be undertaken by both for-profit, and not-for-profit organizations, if there is the element of a financial return. UNDP indicates that private equity and private debt are the most common products adopted, with the latter taking the largest share in value terms.
Key Success Factors. The success of impact investments depends on key intermediaries that catalyze and link investors with impact driven enterprises. Of importance is Governments and DFIs. They provide enabling environment in which market transactions materializes to direct incentives and co-financing.
Registration of a benefit corporation can help address the legal mandate of balancing fiduciary duties between shareholders and stakeholders. It should also be noted that this B-corporation can be privately certified in addition to its legal registration.
Governments may also support benchmarking of previously developed environmental, social and governance market indices. This is to track companies that meet certain environmental and social sustainability criteria, with a focus on low carbon businesses.
Impact Measurement Tools. Despite the steady growth, harmonization of impact measurement and reporting remains a big challenge. The industry is marred with confusion on what measurement approach to take. Three approaches have so far gained popularity including: Impact Reporting and Investment Standard (IRIS); Global Impact Investing Rating System (GIIRS); and PULSE.
IRIS sets standard definitions that helps firms, and investors define their social and environmental performance whereas GIIRS uses the IRIS and generate data that feeds industry benchmark reports as an impact rating tool and environmental performance. This is then complimented by PULSE which collects, and report data based on geography, sector or time period to demonstrate exactly where and how the investments are most effective. All the above have a shared and complimentary role.
Reporting Challenges. There are significant reporting challenges including:
- Lack of a common shared language for reporting impact
- Limited understanding of long-term business value that comes from the pursuit of impact alongside profit
- Lack of a standard method, measures and the numerous competing approaches
- Actual returns for society are hard to measure
- Low levels of integration of impact into investment decisions
This is a call for collective actions by all stakeholders involved.
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 email@example.com. aea365 is sponsored by the American Evaluation Association and provides a Tip-a-Day by and for evaluators.