Measuring impact investment return

Venture & Private Equity financial return indicators are universally accepted industry standards, as investor you would expect funds IRR, MOIC, DPI, TVPI...to assess the performance of your investment.

Things are more challenging for social and environmental returns within the investment strategy of Impact investment, as hinted in this interview @Wharton impact．

First of all, what is an impact investment (II)? GIIN, a network of II investors defines it as “investments made with the intention to generate positive, measurable social and environmental impact”. Now, this obviously a very broad sense conceptualization, to allow a certain flexibility.

The real II industry presents a wide spectrum of investment strategy, with a trade-off between financial return and social/environmental return as illustrated here by INSEAD. In practice this can be visualized into a mapping of II GP and its portfolio following for example the tool created by IMP or IRIS+.

Take individually, each portfolio company will have a qualitative and quantitative score card with its narrative, based on the principle of impact chain. These tend to be synthesis of outcomes (short term) and impact (long term), like this example.

However, how could you compare the social/environmental return across different players? A sort of EBITDA for financial performance of companies or IRR for funds? Bridgespan, The Rise fund came up with the method of impact multiple of money (IMM) which is explained in detailed in this HBR article.Basically non-financial indicators (how many life saved, how many life improved etc) are monetised through evidence based data, therefore everything get an economic value.

Hope you find this article useful and interesting.