Impact investors want their savings to generate more than just solid financial returns. They look for opportunities to simultaneously generate measurable, beneficial social or environmental impacts through their investment choices. Impact investing can occur across asset classes and investors look to use their capital to help address a range of regional and global sustainability issues. From social housing and accessible finance and healthcare, to the wider remits of renewable energy and sustainable agriculture, impact investors look for companies and organisations of any size or type working towards improved, sustainable outcomes.
Financial performance is relatively straight forward to assess, but how can investors measure the impact of their investment choices and how might they quantify success in the long-term? While the subject and scope of impact investing is extremely broad, the following guidelines aim to help investors develop a competent and measurable long-term impact strategy.
1. Plan: Be clear about your impact
Define the type of difference you want to make and identify the organisations you can support to achieve it. Make time to understand organisational goals and how your investments might be used to achieve them. Try to gauge the difference your support could make. What improvements in outcomes might added investment achieve?
Establish what parameters are used to measure the impact of your investments and learn how to access and understand them. How would your investment contribute to the outcomes you want to achieve? Does their vision of successful impact match your own? These metrics will be your framework throughout the process.
2. Do: Support people and organisations
Allocate your investments, then carefully monitor and store all relevant positive, negative and neutral performance data.
Ensure that all the methods you and your target organisations use to capture performance data work effectively. Collaboration with other investors is encouraged as both sides stand to benefit from data sharing. Measure all information received against your own vision of successful impact. Review all data for accuracy and transparency to ensure investment decisions remain well-informed, but recognise that impact measurement can be difficult - so be prepared to work with organisations to help them improve.
3. Assess: Identify impacts made and how and why they occurred
Over a given data period, how much impact have your target organisations achieved and how influential were your investments in driving meaningful change? Consider how other external factors such as changes in corporate or government policy may have influenced impact.
Analyse data in the context of your original framework for success. Compare initial targets with actual or interim results. This should help to build a picture of relative investment achievements. Your investments will have had some sort of impact wherever they are, whether positive, negative or neutral. It’s their alignment with your vision of success that’s key. How effective were reported results? Were any highlighted improvements instrumental in generating measurable outcomes? Were any of your initial expectations met?
Identify which of your investments generated the greatest social impact. Marry impact performance with financial performance and make informed investment decisions.
4. Review: Share lessons learned and improve best practice
Reporting is key. Share your findings with all stakeholders from beneficiaries to funders, so that everyone learns from your analysis. Think about what could have been done differently and be willing to adapt.
Finally, keep reviewing your portfolio. The impact performance of an investment varies according to changing economic and political environments, so your holdings and your framework for success will need continual analysis.
Impact investing at Rathbone Greenbank
Remember that you can have an impact throughout your portfolio by investing in a manner that more closely reflects your charitable objectives and values. The impact can be measured through a sustainability analysis of the portfolio.
Victoria Hoskins, is investment director at Rathbones. Rathbone Greenbank’s investment proposition caters for every type of investor, with portfolios that can blend responsible, sustainable and impact investments. It’s been at the forefront of innovation in ethical and sustainable investing since it was founded in 2004. Today, Greenbank has a dedicated research and investment team, managing assets of over £1.2bn charities and private clients.
With thanks to Rathbones for their support with this article.