COMMENTARY
I made the following comment about this blogpost. PeterBurgess • 7 minutes ago

The answer to the question ... Do you think these promising tools will reach a sufficient level of acceptance in the impact investment community in the near future? ... is NO.

I think the answer to the question ... what's missing? ... is that the proposed metrics are detailed without being comprehensive and are a method without being a system. I come at metrics initially as an engineer, rather little as an economist and also somewhat as a former double entry bookkeeper and corporate CFO.

So IMAGINE a world where ALL economic activities are on the record (journalised) not only to record the money dimension of the transactions but also the value and social impact and there is universal reporting.

There is no transparency if there is no accounting. There can be no accountability when things don't get measured are not integrated into a reporting system.

Everything is part of a value chain that has both organization impact and community impact. The value chains are connected. Most of the metrics originate from an organization perspective, not the perspective of society.

In double entry accountancy there is an unbreakable connection between the balance sheet and the operating statement (often referred to as the profit and loss account) and this connection is as important in truevalue accounting for society as it is in money profit accounting for organizations. This is missing in all the proposed impact metrics making the proposals difficult if not impossible to implement efficiently and really easy to 'game.

In modern financial reporting there are a lot of reported profits that are merely the migration of other people's wealth into the ownership of an organizations. Meaningful metrics cannot allow this. This is a huge example of the metrics being gamed for the advantage of those that control the system.

With the technology now available we are able to implement ubiquitous meaningful metrics ... but we have to get outside the old boxes of metrics taught at the universities! We have to put in place metrics that are meaningful but not wanted by most of the rich and powerful individuals and organizations. And there cannot be holes in the system.

SOCAP 10: Harmonizing Tools to Measure Impact

Yet again, measurement continues to be a sexy topic. SOCAP 10 assembled social investors, social entrepreneurs, and supportive agencies to set the discourse on shaping an impact investing market based on transparency. Investors are increasingly demanding that they track their spent dollars through comparable results to identify output, outcomes, and impact.

As both demand and supply emerge, the need for coherent and 'harmonized' social and environmental performance system has become apparent. The suppliers are here to pitch their tools for impact assessment at this year's Metrics and System Thinking panel, 'Harmonizing Tools to Measure Impact'.

As I sat in the conference room at Fort Mason Center, a few looming questions lingered in my mind about the future of impact assessment. Have we arrived at a consensus on how to benchmark social and environmental returns and can it be done at all? Can instituting a standardized performance metric system attract more funders and expand the entire pie of impact investment?

IRIS, GIIRS, and PULSE: The Impact Measurement Trifecta

The panelists tasked with answering these questions included key leaders driving the convergence of measurement standards, Sarah Gelfand, Director of IRIS at the Global Impact Investing Network, Beth Richardson, Director of GIIRS from B Lab, and Lindsey Anderson, Impact Assessment Manager for ANDE. The end-user experience was shared by the early adopters of the metric system Kelly McCarthy, Impact Officer from New Ventures, at WRI, and Gina Rodolico, Chief Operating Officer at E+Co.

Followed by a primer on some key terms in the impact investing lexicon , Anderson briefly illustrated the 'harmony' between the various tools to be introduced: IRIS, GIIRS, and Pulse(a portfolio data management system initially developed by Acumen Fund, Google and other industry players). Gelfand described IRIS to be an 'international financial standard', a tool that provides a framework for comparing social and environmental indicators across sectors and geographies. Next, Richardson created a simple analogy linking GIIRS to IRIS, 'if IRIS is a financial standard, GIIRS can be thought of as a rating system like S&P or Moody's.' GIIRS rates certified B Corporations on social and environmental values using IRIS standards. Lastly, Pulse was the third element completing the harmony trifecta. Delivering the added benefit of data linkage between Salesforce, Pulse allows investors to conveniently track impact measurements of their investees using IRIS indicators.

For the organizations embracing this set of tools, like E+Co and ew Ventures WRI, the pros clearly outweigh the cons. Rodolico and McCarthy both extolled the benefits of standardized measurements for comparability of investees, external communication, and enabling synergies with organizations in the environmental investment sector. The two organizations recently collaborated on an upcoming release of their new method, Toolkit for Impact Measurement (TIMe), and is designed to train entrepreneurs on impact measurements of environmental performance.

Impediments to Orchestrating an Effective Metric System

Implementing a common taxonomy and data management practices based on these standards raise several critical issues. The usual suspects include: 1) cost implications, 2) incentives, and 3) relevance. These issues emerged in last year's metrics panel, Metasizing Metrics, and resurfaced in the Q&A portion of the panel this year.

1) Cost
The cost of implementing a new performance metric system is an unavoidable reality. When asked about challenges, 'resource' was the first issue voiced by Rodolico. From the nods of agreement across the panel, it was clear that the cost of tracking the data to populate Pulse will not be an easy pill to swallow for investees without adequate resources for monitoring & evaluations (M&E). McCarthy posed a potential solution to this issue by recommending that foundations consider investing in M&E operations.

2) Incentives
McCarthy expressed concern for the challenges in aligning incentives with investees to track accurate and timely impact data. From the entrepreneur's perspective, the long-term benefits of these tools are plentiful including streamlined reporting, credibility, and support in performance improvement. These benefits should all contribute to significant long-term cost savings. However, in the short-term, immediate incentives are difficult to identify. Enforcing the use of these tools by investors will push these standards across the tipping point to towards mainstream utilization.

3) Relevance

In the Stanford Social Innovation Opinion blog, Kevin Jones describes 'inclusion' to be the trickiest issue for mainstreaming IRIS. Particularly when investees are entrepreneurs in developing countries, the voices and opinions of individuals collecting on-site data often go unheard or unheeded, when designing impact measurement systems. When the indicators are solely chosen by the donors for benchmarking investees, relevance to local realities and social mission should be questioned.

The new IRIS version 3.0, released yesterday, is an upgrade to address some of these concerns around relevance of indicators. The upgrade features end-user feedback mechanisms to ensure that BOP voices are incorporated.

Some final thoughts...

Despite some lingering obstacles, the buzz at SOCAP generated by the promise of measurement and metrics will endure. However, the future of impact investing metrics and the answers to my looming questions are contingent on the industry's ability to foster a harmonized metric system addressing the issues of cost, incentives, and relevance.

I now want to turn to the readers of NextBillion to ask... Do you think these promising tools will reach a sufficient level of acceptance in the impact investment community in the near future? If so, why? If not, what's missing?

Beth Richardson • 2 years ago

Elly - thank you so much for posting this thoughtful post from SOCAP this Fall.

As a point of clarification GIIRS is available not only for Certified B Corporations, but also for any company both in the US and abroad that is seeking to raise capital from an impact investor.

The first 200 companies that will receive GIIRS ratings are those that have been invested in by the 25 Pioneer GIIRS Funds (http://giirs.org/for-funds/pio.... Pioneer Funds are leading venture capital and private equity firms making impact investments. The 25 Pioneer GIIRS funds have investments in more than 30 countries around the world. The answer to the question ... Do you think these promising tools will reach a sufficient level of acceptance in the impact investment community in the near future?