Using the Right Tools
Impact investors must build consensus around standards and best practices.
The Role of Impact Metrics
How IRIS, PULSE, and GIIRS can further impact investing.
According to a recent report from JPMorgan Chase, investment liquidity and the uncertainty of financial returns are among the impact investing industry’s biggest risks. To mitigate these perceived risks and ensure that the impact investing industry thrives, a strong case must be made by a critical mass of impact investors for a long view and more patient forms of capital. To effectively make this case and secure impact investing as a universally recognized asset class, a consensus must be reached around measurement standards and industry best practices.
Demonstrating the social impact generated by investment capital is a great challenge. Any investor who self-identifies as an impact investor recognizes the importance of collecting non-financial indicators to more effectively communicate social and environmental performance. However, a chasm exists across the industry between the recognition of a need and the universal execution of effective monitoring and evaluation programs for impact management. The same questions are repeatedly raised and debated at industry conferences and events, and can be loosely grouped into three buckets: 1) What metrics should be tracked? 2) How can data be managed effectively? and 3) What is the best way to make impact data useful, both internally and for the industry as a whole?
The good news is the necessary tools for answering these questions are available right now. They are in use by leading impact fund managers, foundations, institutional banks, nonprofits, and family foundation offices—and they have proven to be effective in managing data and reporting on the impact of investment capital. The Global Impact Investing Network (GIIN) provides the Impact Reporting & Investment Standards (IRIS), a taxonomy to define standard metrics and offers tools to make these metrics accessible. The Global Impact Investment Reporting Standards (GIIRS) offer fund and company ratings as well as an analytics platform to the industry. PULSE provides a data management platform to collect, manage, and report on impact portfolio data. The three were devised to meet specific industry needs and can be used in a complementary way. The success of these tools is encouraging. Not only are they helping individual organizations invest more intelligently, but the tools can be adopted industry-wide to help the asset class gain wider recognition.
Where to Begin?
Many organizations are lured by the promise of the technology that a system like PULSE offers, and they gravitate toward the software solution to get started. But these organizations quickly realize that before a database solution can be relevant, they must at least have metrics identified and business process in place around impact management.
For organizations that already have a monitoring and evaluation program in place for tracking impact, PULSE is a good fit. A strong monitoring and evaluation program entails establishing a mission-aligned theory of change, identifying outputs and outcomes, and choosing metrics and indicators to measure progress toward goals or objectives.
This begs the question: If effective processes are already in place, why does an organization need a system like PULSE? The answer is that it’s really a matter of scale. It might make sense in the beginning to simply track data in an excel spreadsheet, but as an organization or portfolio grows the spreadsheet method can prove cumbersome and unstable. Spreadsheets also have substantial limitations in reporting and sharing data.
What Does PULSE Offer?
PULSE is preconfigured with the IRIS taxonomy, but the tool is flexible enough to support other frameworks and/or custom metrics defined by an individual organization. For impact data to be useful to an organization, it needs to be collected and managed in an organized way. This is where PULSE shines as a solution to support business process and manage impact data. PULSE is a database that allows for flexibility in how data is collected, managed, and reported.
And as a cloud-based application, PULSE can be accessed through a web browser and data is securely stored off-site. This means data can be accessed and entered anywhere with an Internet connection, making it a flexible solution for organizations all over the world. For example, multiple users can access the same data in real time, allowing for increased transparency across the organization with easy access to information and the ability to share institutional knowledge.
The ultimate benefit of PULSE rests with the ability to look at data across a portfolio and truly manage impact. Data can be queried and analyzed using robust reporting functionality.
Begin With the End in Mind
Organizations vary greatly in how they choose to position their data to make their impact cases. This may mean contributing to industry benchmarks through IRIS or getting GIIRS rated, but it may also mean having strong internal controls around meeting stated objectives presented through robust annual reporting. PULSE allows these large periodic efforts to be streamlined by having a consistent means of capturing data. In addition, a well maintained database makes information useful any time specific questions need to be answered about a portfolio.
Imagine a scenario in which a portfolio manager is on a conference call with a group of stakeholders. When pressed for details about the specific impact in Sub-Saharan Africa of the investments in her water portfolio, she queries her database and in seconds she can report that in the first quarter there were 51 full-time jobs created and 543 lives impacted across the portfolio. That is powerful stuff.
Integrated Technology Solutions for Impact Investors
Keep in mind that impact management should not occur in a vacuum. The most successful impact managers employ a cohesive technology strategy that supports communication and transparency across the organization. Because PULSE is built on the Salesforce.com platform, integration is possible with CRM (customer relationship management) systems and other business process management tools. When integrated, these systems provide a full front-office solution that can deliver powerful advantage by organizing and leveraging institutional knowledge.
Return on Investment
Designing an effective impact management program and implementing technology to support organizational business process are not small undertakings. A plan must be thoughtfully laid out and executed, which requires an investment of resources. Some choose to manage these projects internally, while others leverage the expertise of consultants. Regardless of the path, the initial investment will result in more transparent, reportable, and flexible impact management as well as a more streamlined way to help the industry scale and make impact data more useful for everyone.
The tools necessary to establish industry standards and best practices are out there and they are continually evolving to meet the demands of discriminating organizations and a dynamic industry. As the standards and methodologies employed through the use of IRIS, GIIRS, and PULSE become more universally adopted, the benefits will be realized by individual organizations in the form of reliable, reportable impact data and a more unified and credible industry as a whole.