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A recent study by J.P. Morgan and the GIIN asked investors to give their opinion on the current state of the impact investment market.
75% – In its infancy and growing
19% – About to take off
6% – A lot of talk, not much action
0% – In its prime
0% – A potential bubble
0% – Slowing down
Step 1: Start tracking
There are many available tools that can help ambitious organizations track, graph, quantify, and communicate their success. And these organizations are finding that if nothing else, they benefit from measurement because it helps promote whatever it is that makes them special. For a nascent industry such as Impact Investing, meeting the old style finance-driven business approach halfway by speaking in their language of quantifiable numbers helps bridge the chasm that currently keeps more businesses from getting on board.
Our reality is that we have seen some a number of creative ways for organizations to measure and count the success of their impact.
What is IRIS and how does IRIS fit in?
IRIS was developed by The Rockefeller Foundation, Acumen Fund, and B Lab to help this growing community of impact investors-fund investors, direct investors, and companies raising capital-accurately evaluate impact investments with more than just financial performance data. IRIS provides a common reporting language for impact-related classifications and metrics that standardize the way organizations communicate and report their social and environmental performance. The result is more valuable and consistent non-financial data that forms the basis for meaningful comparisons and benchmarking with other organizations.
For organizations that are seeking to track metrics or that are already tracking metrics independently, IRIS serves as a way to amplify the positive effects of those efforts. Obviously, organizations do not need IRIS to track impact and prove that they are doing good. But for impact investing organizations and non-profits alike, IRIS and the IRIS taxonomy can serve as a great starting point and keeps organizations from having to reinvent the wheel on measuring impact.
Once organizations have started tracking metrics with IRIS, many will realize that the taxonomy might not perfectly cover their business. For this reason, IRIS is growing to increase specificity, improve clarity, and apply more broadly. Organizations also have the option to meld the IRIS taxonomy with their own custom metrics creating a more complete picture of one’s theory of change.
How does metric tracking help the industry?
Impact investing got started with a handful of very committed people who were willing to allocate capital to the common good in the absence of infrastructure and systems that fully vetted the concept. They did it on faith, they did it on belief, and they did it on the knowledge that “doing the right thing” is the right thing to do. What the IRIS taxonomy and the eventual benchmarks provide is a way for organizations to increase their level of confidence in the effectiveness of their efforts; it offers proof that the founding fathers of Impact Investing were right.
In a vacuum, one organization may think that their ability to create a certain outcome is worthy of further investments — until they compare themselves to other organizations in the same space and realize that others have done substantially better. Breakthroughs often happen when you compare your success to that of others and success can only be compared when we agree on how we measure.
What’s the plan going forward for IRIS?
IRIS released the first ever Performance Data Report in 2011, providing an quantified glimpse into industry characteristics and the performance of organizations receiving and seeking impact investment capital. This first report is limited by the number of funds submitting data and presents only a small fraction of the Impact Investing space-2,394 organizations total.
In order to continue strengthening future market intelligence, IRIS needs more social, environmental, and financial performance data. The resulting analysis will help the impact investing community make better-informed decisions and facilitate more effective use of impact investment capital.
While doing good is always good, being able to compare relative good is the beginning of a market economy for impact investing. And those comparisons extend to the performance of funds that provide capital to impact organizations, not just impact organizations themselves. Just as in traditional private equity, there exists a great amount of intellectual capital around each successful impact fund manager’s recipe for success in vetting deals. Both private equity fund managers and impact fund managers are charged with finding the organizations that are most ripe for investment and they are judged based on the return of that investment. Until now, however, there has been no universally-accepted way to measure the success of an impact investor.
As IRIS becomes a more widely-accepted and widely-used comparison vehicle, impact investing can cease to be the emotional “leap of faith” asset class that it has been historically. Instead, through widespread use of IRIS and contribution to the IRIS Data Report, impact investments can be uniformly measured and compared and the asset class as a whole becomes more appealing to a much larger investing population.
Application Experts, LLC(App-X) is the leading provider of flexible web-based solutions for Alternative Asset Fund Managers and Institutional Investors. App-X clients are leaders in the Alternative Asset community with over $65 billion in assets under management. App-X is headquartered outside of Denver with offices in Boston and Chicago and has been the exclusive PULSE manager since 2009.
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