How Do We Measure “Impact” in Impact Investing?
Making an investment with the intention of generating social and environmental impact alongside a financial return is called “impact investing.” By definition then, success depends on our ability to measure impact – how much and what kind of impact did we generate? It has been ten years since the phrase “impact investing” was first coined and we have come a long way in terms of evaluating the impact of individual companies (e.g., GIIRS) and across asset classes (e.g., iPAR) but how do we measure impact across a portfolio of direct investments?
At Investors’ Circle’s PCC Funds, we are thinking about impact during every pitch heard, every due diligence completed, and every investment closed. Recently, we partnered with a CASE i3 team at Duke University’s Fuqua School of Business to develop a tool to systematically quantify the impact of the PCC portfolio.
The first step in building our impact model was to identify the underlying impact metric for each PCC portfolio company. Example company-specific metrics included pounds of trash removed from US waterways and number of low-income tenants benefitting from a platform. We then developed a short list of higher-level Key Impact Indicators that reflected the diversity of impact within our portfolio. The figure below illustrates the collective impact of our portfolio in terms of these Key Impact Indicators:
The Key Impact Indicators capture the PCC portfolio’s tremendous social and environmental impact. This high-level view demonstrates real progress toward the PCC impact goals of Improving Quality of Life, Alleviating Poverty and Inequality, and Transitioning us to a More Sustainable Economy. But of course this high-level view does not tell the whole story; it is equally important to highlight the work and unique impact of individual companies. For example, we have two portfolio companies that are addressing high recidivism rates by providing inmates with access to educational content on tablets (Edovo) and connecting families and inmates via phone communication and photos (Pigeonly). Collectively, these two companies have benefited over 85,000 inmates to date. Though this measureable success is part of our portfolio’s Key Impact Indicator of 1.9 million “Platform Users Benefitted”, this example illustrates the importance of evaluating and communicating to our investors the impact of individual companies as well as the collective impact across the portfolio.
Success in the impact space depends on our ability to quantify and report the impact of our investments. We need tools that allow us to aggregate impact without losing focus on the individual stories that make impact investing compelling and rewarding for us all. The stories are the heart of impact investing and at Investors’ Circle and the PCC Funds we remain dedicated to curating companies with real impact stories and real financial return.