Measuring Impact Investment

Yesterday we looked at IMPACT INVESTING in Real Estate, today we will look at how to measure the impact as well as a few Impact Investment strategies.

You can read yesterday's article here: Impact investing

Measuring impact

There are numerous strategies for measuring the impact of these projects. In May 2016, Ivy So and Alina S. Capanyola published in the Stanford Social Innovation Review an analysis of their 2015 Harvard Business School study on this topic. In this article they state: "All social impact leaders agree that measuring the social effect of an investment is important, that measurement can help organisations make better decisions and communicate their value, and that financial returns must be balanced with social returns. But most of these points of agreement remain theoretical: few resources discuss the specific practices and methodologies that investors actually use to measure social impact".

To conduct this research, more than 20 leading impact investors and practitioners in related fields from organisations such as Acumen, Bridges Ventures and Root Capital were interviewed. Through these interviews, it was found that investors use impact metrics for different objectives at different parts of the investment cycle, and that the methods for doing so vary depending on the objective.

These objectives were divided into four main phases:

1. Impact estimation: conducting due diligence to assess potential social returns before committing to an investment.
2. Impact planning: choosing the metrics and data collection methods that the investor will use to monitor the effects of a programme.
3. Impact monitoring: measuring and analysing impact over the life of the investment to track the effects of the intervention.
4. Impact evaluation: measurement of the social consequences of an investment after the conclusion of the programme to assess portfolio performance and next steps for the investor, including reinvestment.

For its part, in 2019, GIIN proposed a new tool in the US and UK to measure this impact on building issues, but with a focus on investors.

GIIN aims to facilitate knowledge sharing, highlight innovative approaches to investment, build the evidence base for the industry and produce valuable tools and resources. Ultimately, it seeks to accelerate industry development through focused leadership and collective action. It does this by focusing on reducing barriers so that more investors can allocate capital to fund solutions to the world's toughest challenges. This is achieved by building critical infrastructure and promoting activities, education and research that help accelerate the progress of a coherent impact investment industry. In this context GIIN has developed a system for measuring the social impact of investments, IRIS+.?

IRIS+ is an accounting system that investors use to measure, manage and optimise their impact. Proper use of the IRIS+ system ensures a minimum level of consistency in impact statements and user performance, making it easier for investors to analyse and extract decision-useful information. The use of IRIS+ also facilitates the comparison of impact information.

The standards underpinning the IRIS+ system are continuously updated in line with market developments in a number of ways:

1. Additions to the core metrics sets are informed by evidence-based research and an extensive stakeholder consultation process.

2. New core materials, core concepts and other implementation guidance are prioritised as a result of three inputs:

a) The ongoing open call for market feedback.

b) The biennial GIIN impact measurement and management survey.

c) Internal agenda-setting processes, all of which are subject to review by an advisory committee and coordination with other aligned standard setting bodies.

3. All new materials are added only after they have been vetted through stakeholder consultation, usually in the form of an expert working group, and then reviewed during a public comment period.

The procedure includes among other variables:

• Main characteristics of impact investment
• Fundamentals and basic concepts
• Metrics catalogue
• Standards

Impact investment strategies

The main objective of Real Estate Impact Investing is to invest in real estate that can simultaneously achieve financial returns with a measured environmental and social impact. To this end, there are a number of strategies, including sustainable buildings, affordable housing and sustainable communities.

1. Green Real Estate strategies: focus on applying environmentally sustainable principles to projects. The goal is to deliver a real, physical asset that exceeds current building standards for energy efficiency, water efficiency, waste reduction and safe housing. Investing in green real estate achieves environmental impact.
2. Housing affordability strategies: focus on maintaining the affordability of the built environment now and in the future. The aim is to provide a supply of housing to an underserved part of the population. Investment in affordable housing achieves social impact.
3. Sustainable community strategies: focus on designing and building real estate assets that provide the basis for neighbourhood growth. The aim is to deliver projects designed with input from the local community, provide central congregation areas for public interactivity, and address certain essential neighbourhood needs. Sustainable community investment can achieve environmental and social impact.

Author: Verónica Martín of VMT & Associates

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