Impact investing has become an increasingly popular approach for investors who want to generate social and environmental impact alongside financial returns. However, measuring the impact of these investments can be challenging. This article will provide an overview of key performance indicators and frameworks that can be used to evaluate the impact of an investment. Proper measurement enables investors to understand if their capital is truly driving impact and aligns stakeholders on intended impact. Occurrences of ‘impact investing’ and related terms are included throughout the article in an organic way.
Common impact metrics based on IRIS catalog
One of the most widely used resources for impact measurement is the IRIS catalog of metrics developed by the Global Impact Investing Network (GIIN). It provides a set of standardized metrics across different sectors like agriculture, education, energy, and healthcare. Common IRIS metrics include number of beneficiaries reached, number of jobs created for target population, greenhouse gas emissions avoided, percent of affordable housing units created, etc. Investors can select relevant metrics from the IRIS library based on the specific impact goals of their investment. For an education company, relevant metrics could include student enrollment numbers, test scores, and dropout rates. The chosen metrics should directly relate to the social or environmental impact the capital aims to achieve.
Theory of change and impact logic models
In addition to tracking standard output metrics, investors must also understand the theory of change behind how their investment will create impact. This means mapping out the causal links between the activities of the investment and the intended outcomes. For example, providing vocational training to unemployed youth is expected to lead to higher employment and income levels. Impact logic models visually represent the theory of change and can supplement the measurement framework. At each stage of the impact logic model, relevant output, outcome and impact metrics can be defined to evaluate if the expected changes are occurring. This enables greater alignment between stakeholders on how impact will be achieved and assessed.
ESG performance frameworks
Monitoring Environmental, Social and Governance (ESG) performance is also an important component of impact measurement. Widely adopted reporting frameworks like the Global Reporting Initiative (GRI) provide guidance and disclosures across ESG factors. For example, environmental metrics could cover energy usage, waste generation, and water consumption. Social metrics range from employee wages and turnover to product safety and data privacy. Governance disclosures provide information on issues like executive compensation, board independence, and anti-corruption policies. While ESG metrics themselves may not fully capture impact, strong performance demonstrates that an investment meets minimum sustainability standards and practices responsible business conduct.
Customized measurement plans
Given the diversity of impact objectives, it is also common for investors to work with companies to design customized measurement plans. These plans define impact goals, select quantitative and qualitative indicators to track performance, and outline monitoring processes and dashboards. Impact measurement becomes most meaningful when it is tailored to the specific business model and theory of change. Investors can provide hands-on support to investees to implement monitoring systems and integrate impact considerations into strategic decisions. Measurement plans may also evolve over time as the company matures. Maintaining flexibility to adapt indicators and targets allows impact performance to be managed as an integral part of operations.
Impact investors can apply frameworks like IRIS, logic models, and ESG disclosures to measure impact performance. Customized measurement plans aligned with a company’s theory of change also enable meaningful assessment. Rigorous measurement provides the foundation for actively managing impact and demonstrating how investments create social and environmental value alongside financial return.