Practical analysis for investment professionals
23 September 2013

Impact Investing: How Do You Measure Social and Environmental Impact?

Any investments can have a positive impact on society and the environment, but what distinguishes impact investments is their disclosed intention to make a positive social and environmental impact and then measuring the impact. This is how Harry Hummels explained impact investing in an interview with CFA Institute. Because intending and measuring impact is the distinguishing feature, the metric used is of critical importance. To help standardize measuring and reporting, the Global Impact Investing Network (GIIN), a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing, created Impact Reporting and Investing Standards (IRIS), a catalog of generally accepted performance metrics. To learn more about these metrics, CFA Institute interviewed Sarah Gelfand, director of Impact Reporting and Investing Standards at the GIIN.

CFA Institute: Tell us about IRIS?

Sarah Gelfand: IRIS is a catalog of more than 400 generally accepted performance metrics. Impact investors use these metrics to measure social, environmental, and financial results. IRIS is a free resource, and it provides a common language for the impact investing market. It makes it easier to compare both financial and nonfinancial investment performance. It also helps in accurately aggregating and analyzing results from a variety of impact investments.

Why and how was IRIS created?

Prior to IRIS, impact investors often relied on anecdotes or proprietary metrics to describe their social and environmental impact. This made it challenging for investors to credibly and consistently communicate the results of their investments. It also imposed burdensome reporting demands on investees and inhibited the development of market intelligence.

To address these issues, IRIS was developed jointly by the Rockefeller Foundation, Acumen Fund, and B Lab, with support from Hitachi, Deloitte, and PricewaterhouseCoopers. It was publicly launched in 2009 as an initiative of the GIIN. Today, the GIIN manages the IRIS catalog with the support of a formal advisory body that contributes to the continuous development of the IRIS metrics.

Metrics are selected or developed for the IRIS catalog through a formal and transparent process that includes review and inclusion of existing third-party standards (including the International Financial Reporting Standards, the Microfinance Information Exchange, and the Global Reporting Initiative), input from expert working groups and advisors, and feedback from users and the public.

How is IRIS expected to help impact investors?

IRIS provides a single source for metrics that enable investors to create informed performance measurement systems and avoid mistakes that affect results and credibility.

IRIS also bolsters the impact investing field broadly by enabling comparative and aggregate analyses of data from across the market to provide a clearer picture of how well investors are meeting social, environmental, and financial targets.

How does IRIS help other stakeholders, such as entrepreneurs, researchers, and policy makers?

IRIS is developed with the needs of impact investors in mind, especially those who invest directly into companies and projects. However, it’s a useful tool for any person or organization interested in impact measurement, including mission-driven entrepreneurs, government investors (such as development finance institutions), researchers, and philanthropists.

Entrepreneurs, researchers, policy makers, government aid funders, and philanthropists can all reference IRIS to find trusted metrics for documenting and tracking social, environmental, and financial performance.

Additionally, researchers, policy makers, and other participants in the impact investment market may be interested in reviewing research released by the IRIS initiative, which collects, aggregates, and analyzes IRIS-aligned performance data from enterprises receiving or seeking impact investment capital. Because the impact investing market is still quite nascent and all data is voluntarily submitted, these reports offer only preliminary glances into the performance of the impact investing market. Nonetheless, they are beginning to show the potential of the impact investing market for addressing social and environmental challenges while producing financial returns for investors.

Give us a few examples of IRIS cross-sector metrics?

One example of an IRIS cross-sector metric is “Permanent Employees.” The IRIS definition of permanent employees is the “number of people employed by the organization at the end of the reporting period.” This is the sum of all paid full-time and part-time employees.

Another example is “Target Beneficiary Demographic.” This one is defined as “demographic groups of beneficiaries targeted by the organization’s operations.” These could be children and adolescents, disabled groups, minority/previously excluded populations, women, and/or other.

These definition used a number of terms which are further defined in the IRIS glossary. For instance, the glossary define a full-time employee as follows: Full-time employees work year round and typically work 35–50 hours per week.

Give us a few examples of IRIS sector-specific metrics?

IRIS includes sector-specific metrics in six social and environmental sectors. These are: agriculture, education, energy, environment, water, financial services, health, housing and community facilities.

For example in energy, environment, and water, one metric is “Potable Water Produced.” It is defined as “Amount of potable water produced during the reporting period.”

An example in health is “Health Related Well Visits.” This one is defined as “Number of well visits or screenings, including immunization visits, conducted by the organization during the reporting period.”

Are there impact investors currently using IRIS?

Yes! IRIS-based impact measurement is fast becoming a best practice in impact investing, reflecting a shift in attitudes among investors who, as recently as a few years ago, often saw social and environmental performance measurement as optional. A survey of impact investors published by JPMorgan and the Rockefeller Foundation in 2010 revealed that only 2% of surveyed investors measuring impact used a third-party system, with the vast majority opting to use proprietary metrics developed in-house. In 2013, a similar survey published by JPMorgan and the GIIN, revealed a notable shift toward standardized metrics, with 52% of respondents reporting that they used IRIS metrics for impact measurement.

Additionally, more than 70 registered users of IRIS publicly disclose which IRIS metrics they use to measure social and environmental performance, and IRIS-aligned performance data from more 5,000 mission-driven enterprises (up from 2,500 enterprises in 2011) has been contributed to the GIIN for market analysis, including performance benchmarks.

Recognizing that many impact investors are new to impact measurement, we launched earlier this month Getting Started with IRIS, a user guide designed to address the specific question of how to use IRIS metrics to evaluate the performance of a portfolio of companies.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Usman Hayat, CFA

Usman Hayat writes about sustainable, responsible, and impact investing and Islamic finance. He is the lead author of "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals," and the literature review, "Islamic Finance: Ethics, Concepts, Practice." He is interested in online learning and has directed three e-courses for CFA Institute: "ESG-100," "Islamic Finance Quiz," and "Residual Income Equity Valuation." The other topics he writes about are macroeconomics and behavioral finance. Previously, he was a content director at CFA Institute. He is a former executive director at the Securities and Exchange Commission of Pakistan (SECP). He has experience working in securities regulation and as an independent consultant. His qualifications include the CFA charter, the FRM designation, an MBA, and an MA in Development Economics. His personal interests are reading and hiking.

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