Social Capital Markets 09: The New Money Spectrum
In the final plenary session of SoCap’s packed Day 2, I listened as the panel discussed “From IRIS to GIIRS to New Money”. After a full day of hearing the topic of metrics raised in forum after forum, from break-outs to hallway conversations to tweets and blog reviews of earlier sessions, I was especially intrigued to hear this session. Antony Bugg-Levine, from The Rockefeller Foundation, moderated as B Lab’s Andrew Kassoy, Acumen Fund’s Brian Trelstad (full disclosure – Brian is my boss), and Deloitte’s Chris Park discussed their thoughts on how infrastructure is evolving that will help drive impact investing to a true effective capital market.
Throughout the first two days of the conference, it seemed as though almost every conversation was either directly about metrics, or inevitably came back to metrics. This hot button topic seemed to elicit a range of reactions-from absolute conviction of the need for more rigorous impact measurement to absolute fear that this recent obsession with quantification will cause far more harm than good. The latter is rooted in the belief that forcing social enterprises and their investors to fit within a rigid framework will stifle the creativity that has historically allowed the sector to thrive. As a panelist on the earlier “Metastasizing Metrics” breakout session, I knew where I fell on this spectrum (and if you missed that panel, my title of “Metrics Manager” probably lets you know). But I was eager to see these four industry leaders discuss it; and even more eager to hear the audience’s responses.
As Antony framed the session, one particular remark stuck out to me-his comment that our industry needs to go “from story to substance” really hit on the core question. How do we know that what we are doing is having the impact that we think it is? The infrastructure that exists in financial markets and which enables substantive, transparent results to be reported is simply lacking in our sector. And for investors to drive capital to impact investing, they need to see value, and until this gap in infrastructure is removed, our space will remain “naturally fragmented by people’s passions,” according to Andrew Kassoy.
Each of the three panelists discussed an initiative that their organizations are a part of that seek to start filling this infrastructure gap. Acumen Fund has build an online portfolio management system called Pulse (full disclosure-I am the Project Manager of Pulse), which is used to manage the chain of accountability and understand how we can do things better across our portfolio on investments. Simply put, it lets Acumen Fund write down what we care about, track it diligently, and discern meaning from our investors. Or as Brian put it, Pulse enables us to “eat our peas”-namely, the process of creating and tracking meaningful metrics is not difficult so long as you commit to buckling down and doing it.
Chris Park then discussed the IRIS initiative, a project led by the four organizations on this stage, to develop a taxonomy of social and environmental impact metrics. As Chris put it, IRIS will be for the social and environmental side of impact what U.S. GAAP and IFRS are to financial reporting-namely, the ability to create comparable standards that allow for transparent reporting in the same way that publicly traded companies report on financial returns. IRIS is the language that will allow for apples to apples comparison of social and environmental results.
Finally, Andrew Kassoy discussed GIIRS, which will be a ratings system for funds and enterprises that will allow investors to quickly ascertain the social value of their investments. So whereas Pulse is a platform that lets a fund manager easily track and report on performance, going deep into understanding impact using either the IRIS definitions or custom metrics, the GIIRS ratings system will use the IRIS standard definitions to quickly distill a meaningful rating for investors.
The sense that I had gotten coming into this plenary was that people were either really excited or really wary of these types of initiatives. The Q&A session didn’t really clarify to me where the audience was falling on this question, either.
But one comment towards the end of the session did sum up my own feelings. In answering a question posed by Antony about the price of leadership and of driving for standards, Chris talked about the very real convergence of financial, social, and environmental impact. Today, we don’t have a true market in impact investing. And we won’t until we can bring process and rigor to the latter two dimensions in order to enable investor confidence. The financial infrastructure that exists today (all commentary about the efficacy of said market left for another day) took decades to build. We are just starting the process for building the same capacity for assessing social and environmental impact.
By driving transparency and predictability around all facets of investment performance, impact investing will evolve from a fragmented marketplace to a true capital market. Only when we have tools and systems that allow for tracking performance, talking about impact with a common language, and ratings systems that sit on top of those definitions will Impact Investing be a real, defined asset class. And rather than stifling the creativity and innovation that our sector thrives on, these efforts will create the clarity that enables it to thrive.
This panel (and this author) believes that it is not a question of IF but rather WHEN we will get there. And when we do get there, investors will then be able to make decisions based on personal values rooted in facts that balance the financial, social, and environmental impact because we will have the supporting ecosystem behind what is being measured and reported. Investors will then know that the results of their impact choices are substantive and not stories. Or as Antony eloquently concluded the session-“We want to soon be able to know it in addition to believing it in our heart.”