Earlier this month, the impact investing industry descended upon the majestic city of Copenhagen, Denmark for the Global Impact Investing Network's 2023 Impact Forum. After taking the opportunity to meet industry leaders, connect with partners, and learn emerging trends around impact measurement & management (IMM), here are key insights coming out of the forum on the current state of impact investing and beyond, as gathered by the UpMetrics team.
Data transparency is top of mind for impact investors - The sector is very aware that data transparency is currently a weakness for their industry, and that work must be done to increase visibility across the board.
Data transparency is crucial for impact investors for several reasons:
- Accountability: Transparent data allows impact investors to hold organizations and projects accountable for their claims and actions related to social and environmental impact. This accountability ensures that investments are used for their intended purposes.
- Effective Decision-Making: Access to comprehensive and accurate data helps impact investors make informed decisions about where to allocate their capital. It enables them to identify opportunities with the potential for meaningful positive change.
- Risk Assessment: Transparent data provides insight into the risks associated with impact investments. By understanding the full scope of the risks, investors can better manage and mitigate them.
Impact reporting has no clear definition, yet - Regulations and exact parameters for impact reporting are still being determined for the impact investing community, and will take time to standardize. Check out GIIN's 2023 report on 'Impact Measurement and Management Practices,' which focuses on how impact investors are currently integrating impact reporting throughout the investment process. Some of their findings include:
- Impact investors rely on an assessment of the scale of the problem and global development agendas to define impact priorities, while investee objectives and impact data play a greater role when investors set specific impact targets
- Investors are starting to use impact data to inform decisions but still face headwinds
- Half of impact investors do not engage directly with their end stakeholders, but investors commonly discuss impact performance with their investees.
Impact-driven financial reporting is the next step - The pieces needed for financial systems to include impact are being put in place, even despite the lack of underlying quality data being a running problem throughout the industry. This includes reporting standards, verification, and assurance.
'Materiality' is increasingly gaining traction for impact reporting - Materiality, which refers to the "effectiveness and financial significance of a specific measure as part of a company's overall ESG analysis", doesn't just hold sway on ESG reporting anymore - it was mentioned prominently throughout the event as a suggested starting point for impact measurement as well.
The recognition that 'impact' can go two ways - There is both positive and negative impact to account for, and the industry knows this. However, no one seems to be doing this sufficiently just yet, as it requires a level of learning and transparency we're not ready for.
Distinguishing between ESG vs 'impact' - In European markets, there is a clear distinction between ESG (Environmental, Social, and Business Governance) and 'impact' as compared to US-based impact investors. 'ESG' is understood to be more focused on risk/ mitigation and is now considered basic investment 'hygiene' for incorporating risk/ opportunity into enterprise value, while 'impact' is about net (positive) social and environmental change.
There's a need for regulations around measuring the "social" part of ESG - On the regulatory front, the community seemed fully aware that EU rules are mostly in place for the environment side (mostly via carbon), but not yet standardized around the 'social' side, which is much harder and tends to be place-dependent. Current sustainability-related disclosures are being revised as they yielded some unsatisfactory outcomes - nevertheless, there is still constant pressure from the EU to maintain its lead on setting global standards around preventing impact washing.
As we wrap up the 2023 event season, stay tuned for more of the latest industry trends and best practices from the UpMetrics team!
UpMetrics' impact measurement and management platform helps purpose-driven organizations maximize positive social outcomes by making it easy to collect and use data to measure, improve, and report on impact - then share their story with the world.
To learn more, attend our upcoming platform demo on November 15th!