Burgess COMMENTARY

Peter Burgess

How to measure the social impact of your investment?

Theory GIIRS, IRIS, Social Performanceadmin ... Magic of Microfinance_India_09018

As an impact investor, you might want to better understand the real impact of your investment. Knowing the financial return is pretty easy, and is actually quite visible on your bank account (both in the good an..bad way). But what about the impact? What about the second bottom line that is part of your investment strategy? Yes you have seen the nice picture of the lady sewing in her workshop but anything more substantial than that?

Well, let me tell you, many bigger investors managing billions of dollars are facing the same challenge when it comes to giving accurate “social performance” report. There are two school of thought when it comes to this topic:

• Let’s keep it high level, and this is good enough: some players in this growing sector believe that incorporating social goals and mission in the investment process is good enough. Why bother including additional trackers and indicators that would only make the process more lengthy and increase the transaction costs? They also claim to be “client friendly”, that any company that has to report so much on the social side, might reject the investment in itself, or might be just unable to do so. Focus is paid to the social mission of the company, the genuine commitment of the management and the type of end-clients served.

• Social reporting should become as accurate as financial accounting: some other players think that much more efforts should be given in order to accurately measure the social performance of the investment, as it is a standalone bottom line. Subjectivity and qualitative reporting should be avoided. Initiatives such as GIIRS, IRIS, and Pulse are going that direction.

At theImpactInvestor.net, we fine with something in between. And many investors are fine too. It is good to track 3 or 4 “social perfomance” indicators, such as number of clients, CO2 emissions and number of households supported. A scorecard should ideally be adopted to assess the social mission and awareness of the company and the management, We believe this would be enough to objectively channel funding toward business with impact. Don’t you?

See also Does Impact Investments Generate Below Market Returns?

Magic of Microfinance_India_09018