The Importance of Impact Measurement and Management (IMM) Process

By Kai-Ming Chang

In 2022, the GIIN estimated the size of the worldwide impact investing market to be USD 1.164 trillion, marking the first time that the organization’s widely-cited estimate has topped the USD 1 trillion mark. However, after taking a deeper look at the individual companies or cases, some stakeholders are still not clear about how to manage and disclose impact, leading to the urgent need for impact measurement and management guidelines. ?

In 2022, the United Nations’ High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities issued a more rigorous "Integrity Matters" report guide, explicitly outlining a more precise definition of green investments and the aspects that should be rigorously considered when implementing sustainable investments. The impact investment market is also under scrutiny. An article from Harvard Business School emphasizes the importance of having awareness to prevent "Impact Washing" when engaging in impact investments. Specifically targeting professional fund managers, the authors from Harvard Business School reference the International Financial Corporation's (IFC) nine Impact Principles as guidelines:

1.??????? Define strategic objectives consistent with the investment strategy.

2.??????? Manage strategic impact on a portfolio basis.

3.??????? Establish the manager’s contribution to the impact’s achievement.

4.??????? Assess each investment’s expected impact using a systematic approach.

5.??????? Assess, address, monitor, and manage each investment’s potential negative impacts.

6.??????? Monitor each investment’s progress toward achieving impact against expectations and respond appropriately.

7.??????? Execute exit strategies that consider the effect on sustained impact.

8.??????? Review, document, and improve decisions and processes based on the impact’s achievement and lessons learned.

9.??????? Publicly disclose alignment with the Nine Impact Principles and provide regular, independent verification of the alignment.

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In this article, I briefly introduce several common frameworks for the IMM process.

1.???? The Impact Management Project (IMP):

With five dimensions and the "ABC" guidelines, it provides a qualitative disclosure framework recommended for its simplicity. It serves as a reference guide for companies in the initial implementation of impact management strategies.

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2.???? UNDP SDG Impact Standards:

Designed for companies, private equity, and bond issuers, the SDG Impact Standards offer guidelines for managing SDG impact. It aligns with the OECD's SDG Impact Standards for Financing Sustainable Development. Additionally, in collaboration with Duke University, the Impact Assessment and Management (IAM) open course on the Coursera platform emphasizes conceptual understanding and framework explanation.

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3.???? IRIS+:

Published by GIIN, it provides industry-specific data disclosure metrics that illustrate the impact differences across industries. It offers more detailed and precise industry-specific impact indicators compared to other methods. The collection of data for publicly traded companies may be challenging, hindering the scalability for assessing all listed companies.

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4.???? Impact-Weighted Accounts (IWA):

As a monetized impact methodology, the Impact-Weighted Accounts estimated environmental costs, product impact, and employee impact globally for companies in different regions. It has released environmental costs for 1,800 companies and subsequently published impact costs for products and employees in 2021. However, in situations with incomplete data disclosure, accurately measuring a company's monetized impact on a fair scale poses significant challenges.

Compared to the widely used Integrated Reporting (IR) framework, the Impact-Weighted Accounts Framework (IWAF) features a broader spectrum of capital-related impacts, including Manufactured Capital, Intellectual Capital, Human Capital, Natural Capital, and Social Capital. Additionally, IWAF further incorporates counterfactual thinking, addressing marginal impact under different scenarios.

In conclusion, despite recent positive developments in impact investing market, there is still a need for increased efforts to attract capital for Sustainable Development Goals and accelerate the shift to a low-carbon economy. Stakeholders must deepen their understanding and enhance capabilities while progressing on the supply and demand sides in the market. Further research and implementation are needed in the market.