With the rise of impact investing in recent years, more and more investors are seeking investments that can generate measurable social and environmental impact alongside financial returns. However, a key challenge is how to accurately measure the impact of these investments. Choosing suitable impact investing metrics is crucial for impact investors to track performance, benchmark different investment opportunities, and report impact to stakeholders. In this article, we will explore common impact measurement frameworks, core impact metrics, and best practices for selecting and applying metrics in impact investing.
IRIS catalog provides a standard set of impact metrics across sectors
One of the most widely adopted tools for impact measurement in impact investing is the IRIS catalog of metrics. Launched by the Global Impact Investing Network (GIIN) in 2009, the IRIS catalog aims to provide impact investors with a credible set of standardized metrics to measure social, environmental and financial performance. It contains over 550 metrics across sectors like agriculture, education, energy, financial services, healthcare and WASH. IRIS metrics are organized by impact categories like operational impact, product impact, financial performance, etc. The widespread adoption of IRIS (with over 5000 users globally) enables benchmarking and comparison across impact investments and portfolios. Users can select relevant IRIS metrics based on the specific impact objectives of their investments.
Impact Management Project provides principles and core metrics sets
Another useful framework is the Impact Management Project (IMP), a forum for building global consensus on measuring and managing impact. IMP has defined five dimensions of impact – what, who, how much, contribution, and risk. It also provides core metrics sets for major impact categories like employment, housing, and greenhouse gas emissions. Investors can apply these standardized metrics sets to credibly measure the impact achieved. The principles of IMP also guide investors in evaluating depth of impact, assessing contribution, mitigating risk of harm, etc. Many impact investors now align their measurement practices with IMP’s conventions.
UN SDGs align impact metrics with global development goals
To benchmark their impact investments against global development priorities, many investors are mapping their metrics and impact objectives to the UN Sustainable Development Goals (SDGs) framework. The 17 SDGs provide a shared language and targets to articulate social and environmental impact. For example, investors targeting SDG 3 – Good Health and Wellbeing can measure metrics linked to healthcare access, preventative interventions, and disease treatment outcomes among beneficiaries. Similarly, metrics on income growth, employment generation and financial inclusion would relate to SDG 1 – No Poverty. Aligning measurement to SDGs allows impact investors to explain how their investments contribute to larger global development.
Qualitative data provides context to quantify depth of impact
While quantitative impact data is essential, collecting qualitative insights directly from stakeholders (like customers, employees, communities etc.) helps better understand the experience of impact beneficiaries. Site visits, interviews, focus group discussions can capture nuanced feedback on how the impact investment improved quality of life, which quantitative outcomes mattered most, any unintended consequences, etc. Qualitative data provides the context to properly interpret impact numbers, assess extent of change and identify potential improvements.
Adopting standard metrics tailored to the specific investment objective
While frameworks like IRIS, IMP and SDGs provide a menu of standard metrics to choose from, investors should be deliberate in selecting the metrics most relevant for their investment goals and investees sector/business model. Data collection should balance standardization (for comparability) and customization (for relevance). Too many irrelevant metrics lead to data fatigue. Impact investors must also recognize that measurement has costs, and focus their limited resources only on metrics crucial for driving business decisions and assessing meaningful impact.
In summary, impact investors can utilize established frameworks like IRIS, IMP and SDGs to select standard impact metrics tailored to their investment goals. Combining quantitative metrics and qualitative insights paints a complete picture. But care should be taken to choose the most useful metrics that help demonstrate social impact and drive decision making. Managing impact requires striking the right balance between adoption of standardization and customization in impact measurement practices.