October 3, 2010 | Read Time: 2 minutes
B Lab, a small nonprofit group based outside Philadelphia, has gained nationwide attention for its certification program for socially and environmentally responsible businesses and its push to create a new legal form for such companies.
But the organization has another goal as well: to increase the amount of capital available to companies and investment funds that seek to create both social and financial return.
Since 2009, B Lab has been working to create the Global Impact Investment Ratings System, a standard designed to let investors measure and compare the social and environmental performance of social-purpose companies and investment vehicles.
“You can’t really invest for impact unless you measure impact,” says Jay Coen Gilbert, co-founder of B Lab.
The effort, which used the organization’s B Ratings system as a starting point, has won $6.5-million in support from the Rockefeller Foundation, the consulting company Deloitte, Prudential Financial, and the U.S. Agency for International Development.
At the beginning of 2011, 25 investment funds—including the Acumen Fund, African Agricultural Capital, and Small Enterprise Assistance Funds—will be evaluated using a test version of the new GIIRS methodology. Together the funds, some of which are nonprofit and some for-profit, have $1.2-billion under management.
Measuring Results
To meet the needs of differing kinds of investors, the ratings system needs to work on different levels and be transparent, says Margot Brandenburg, an associate director at the Rockefeller Foundation, in New York.
She says that wealth advisers probably will only want a rating to help them advise their clients. But, she adds, an investor for whom social impact is most important, like a foundation making a program-related investment, will want to see the data that led to the rating.
“They will want more than just two stars,” says Ms. Brandenburg. “They’re going to want to know specifically what the impact on women is or what the environmental footprint is.”
B Lab used its B Ratings system, which was designed to help evaluate American companies, as a starting point. But in creating the new system, it had to make sure that the ratings would also be relevant in assessing businesses and investment funds that work in developing countries.
For example, providing good jobs in disadvantaged neighborhoods is often an important goal of a social-purpose business in the United States. In a developing country, the social or environmental benefit more often lies in the product or service provided, such as anti-malarial bed nets or a water-filtration system.
“Maybe the bed-net company’s not paying people as high a wage as you might have wanted if that was the primary purpose of the company,” says Ms. Brandenburg. “But on the other hand, it’s creating all these bed nets and selling them to very rural populations.”
