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Evaluating the Power of Impact Investing

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Solar power is coming of age in Texas, April 2018 (Photo courtesy Texas Comptroller) Posted for media use

By Sunny Lewis

NEW YORK, New York, October 3, 2019 (Maximpact.com News) – The impact investing industry has matured to the point that investors expect rigorous impact measurement and management practices as part of an impact approach to investing. And impact investors identify transparency in impact performance as a key challenge facing the market. But until now, a method of compiling impact results across investments did not exist.

Based in Manhattan’s financial district, Global Impact Investing Network (GIIN) Tuesday released the results of a pilot research study assessing the annualized impact performance of direct impact investments in clean energy access and housing. In these two sectors, impact investors have a long track record of activity and generally align to standardized metrics sets.

The study investigated two questions – Is it possible to aggregate and compare impact performance data to generate insights? And, What social and environmental results are associated with impact investors’ activity?

At each stage of the research process, a cohort of study participants and advisors offered guidance and input.

Ultimately, the study determined that it is feasible to aggregate and compare impact performance data to generate insights. In coming to this conclusion, the analysts identified key lessons about the process of conducting impact performance research.

They found that context is crucial to understanding and comparing impact performance results.

They learned that routine, synthesized data collection reduces the reporting burden for investors and investees while enhancing the pool of available, quality data.

And they determined that standardized assumptions must be used to produce standardized performance data, a prerequisite to analyzing and comparing the performance of a number of impact investments.

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Global Impact Investing Network Co-Founder and CEO Amit Bouri explains his view of impact investing to reporters at Impact Summit Europe 2018, The Hague, The Netherlands, March 21, 2018 (Screengrab from video courtesy Impact Summit Europe) Posted for media use

Global Impact Investing Network Co-Founder and CEO Amit Bouri said, “This report marks the industry’s first collaborative effort to create an approach that allows rigorous and transparent impact comparisons across investments.”

“Through this approach,” he said, “we build on our Core Characteristics, which define what it means to practice impact investing, and our existing impact measurement and management work, including IRIS+ to articulate which metrics matter most when assessing impact.”

GIIN defines impact as a change in an important positive or negative outcome for people or the planet. The IRIS+ system for measuring, managing, and optimizing impact is “a free and public good to advance impact investing around the world” that GIIN offers.

Investors use IRIS+ to generate data to apply within at any stage in the process, from screening deals, to underwriting, to conducting due diligence, and assessing performance. IRIS+ data can also be used to compare performance between similar investment strategies, within similar impact categories and themes or for the UN’s Sustainable Development Goals.

The GIIN research study identified four characteristics of impact data that enable aggregate and comparable impact performance analysis:

  •  volume of available data for both aggregate and segmented analyses
  •  rigor and standardization of data collection methods and calculations
  •  relevance to real impact results
  •  and availability of data for disclosure

For the study, 11 investors shared data on 56 unique investments and 64 total observations, or annualized investments. These investments were made with a primary focus on private market capital, and across stages of business, with a concentration in ventures and growth stages.

Investors articulated two impact objectives associated with these investments – improving access to affordable and clean energy, and improving energy efficiency, which, in turn, reduces energy consumption and offsets harmful emissions.

They sought to achieve these objectives by financing products and services ranging from solar home systems to grid-based energy systems to waste-to-energy services.

These dual social and environmental objectives are reflected in clean energy access investment results. Together, over the course of a one-year period, these investments:

  • facilitated new access to clean energy for 2.4 million individuals, which represents 2,058 individuals per US$100,000 invested;
  • contributed to 3.9 million metric tons of greenhouse gas emissions reductions, or 3,147 metric tons per US$100,000 invested; and
  • supported enterprises in creating nearly 10,000 net new jobs, or nearly 19 jobs per US$100,000 invested.

In each of these cases, results indicate relatively modest progress toward addressing social and environmental challenges, but progress nevertheless.

Ultimately, the researchers found that it is, indeed, possible to compare the impact of impact investments, and therefore to factor impact considerations into investment selection and investment management decisions.

The analysts learned that 39 investments created 9,772 net new jobs at directly supported/financed enterprises in the reporting year, adding to jobs created by those

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Technician installs solar panels on the roof of a home in the United States, September 2016 (Photo courtesy Aegon Asset Management) Posted for media use

investments in previous years.

On average, each investment created 251 new jobs, representing 2.3 percent of the renewable energy workforce across the countries in which those investees operate.

Relative to the scale of unemployment, these jobs register very-small scale incremental change – 0.03 percent on average. On average, each investment added 18.8 jobs for every US$100,000 invested per year, although more than half of investments in the sample created fewer than 10 jobs per US$100,000 invested.

Investors that track the number of jobs created often seek to understand the outcomes of those jobs. Evidence suggests they can lead to improved quality of life, greater resilience in the face of economic downturns or other shocks, and greater overall economic productivity and stability.

But it wasn’t just the number of jobs created by impact investments that the researchers tracked – it was also the impact of these investments on climate change, which has resulted in extreme weather events, glacier melt, sea level rise, drought, wildfires and extinctions across the world.

Said Bouri, “We’re inspired to see the impact results of the investors participating in the pilot of this approach; together, these investors have facilitated new access to clean energy for 2.4 million individuals and contributed to the reduction of 3.9 million metric tons of greenhouse gas emissions in a one-year period, making modest but meaningful progress toward addressing climate change.”

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