September 3, 2009 | Read Time: 2 minutes
Much like the long-running debate in the nonprofit world about how to measure a charity’s performance, a movement is under way to figure out how to evaluate whether investments that seek both financial and social returns are making a difference.
The absence of common standards means that investors can’t compare the social and environmental benefits of different investment opportunities, said Antony Bugg-Levine, a managing director at the Rockefeller Foundation. Even measures as simple as the number of jobs created through an investment might be counted differently from one social-investment fund to another.
For example, one fund might count only the number of full-time jobs created, while another fund might also include part-time or seasonal jobs.
Rockefeller has been working with the Acumen Fund, B Lab, Deloitte, PriceWaterhouseCoopers, and others in the field to develop a common set of terms to measure the social and environmental return on mission investments.
In June, the organizations released the first version of the taxonomy, the Impact Reporting and Investment Standards — also known as IRIS — and it is working with a set of social businesses and social investment funds to test the initial version.
A second version of IRIS that incorporates lessons learned during the first testing phase is scheduled for release in January and will be followed by public comment period.
Work has also begun on a parallel effort — Global Impact Investing Ratings System, or GIIRS –- which looks at how an independent, third-party ratings systems could be built on top of the information that is collected and eventually aggregated under IRIS.
Most institutional investors don’t want to sift through all the data social investment funds collect, said Andrew Kassoy, co-founder of B Lab.
“They want an easy way of telling the difference between two different companies or two different funds in terms of their social and environmental impact,” he said.
Organizers says that the goal of both efforts is to ensure that social capital moves to the investments that demonstrate the strongest returns, rather than to those that tell the best story.
“It’s about the ability to make a fact-based, emotionless decision that takes that passion for the mission and converts it to the right choice in the form of capital,” says Chris Park of Deloitte, “and to know that there’s an entire ecosystem behind that choice in terms of what’s being recorded, what’s being measured, and what’s being assured and verified.”
Listen to Antony Bugg-Levine, of Rockefeller, explain why he thinks a common standard to measure the social impact of mission investments will help answer the question of whether mission investments that return below-market rates of return necessarily have the strongest social returns.
