- Impact investing needs a standard way to quantify impact that reflects activist concerns
- Impact washing is a huge risk as the market continues to scale without a standard definition of what it means
- Two-third of impact investors are concerned about impact washing, and three-quarters measure based on the broadly-defined SDGs
As impact investors and their portfolio companies eagerly market their influence, one thing has become clear: we need not only a single standard way to measure and compare impact, but a way to develop it based on expertise, not industry norms.
Impact investments are now a $714 billion global market, according to the latest estimate from the Global Impact Investing Network (GIIN). The GIIN’s 2020 survey also found that the number of frameworks used to quantify that impact is finally narrowing: the first survey 10 years ago showed more than 85% of respondents using proprietary measurement tools, whereas today the same percentage use external ones. Yet two-thirds of survey respondents cite “impact washing” as the greatest risk to the field, especially as the coronavirus accelerates interest from traditional investors.
“We want to try to build back something better and really reimagine our economic system,” said GIIN CEO Amit Bouri in an interview with Karma. “That speaks to the work in the investor community around driving impact performance. It’s going to be key for a much bigger set of investors. How do we make sure that great intentions translate into real impact results that people can feel and experience in their community?”
Much like “greenwashing,” a term used for products marketed as more eco-friendly than they actually are, “impact washing” is when an investor or company touts their positive effects on the world without much evidence to back it up and puts the onus on activists or shareholders to prove otherwise. There is not a universally-accepted way, for instance, to hold an organization highlighting its racial equity credentials accountable for them — unless a determined person or group unearths discrepancies and holds the organization’s feet to the fire.
Is that really how we want to quantify the impact of that $714 billion? Wouldn’t it be better for all involved to have a rating system that those same activists had a hand in deciding?
Right now, impact washing is incredibly easy to do because such a rating system does not exist. The most commonly used external frameworks — the UN Sustainable Development Goals (SDGs), the IRIS Catalog of Metrics and IRIS+ Core Metrics Sets, and the Impact Management Project’s five dimensions of impact convention — vary in their specificity. The SDGs are used by more than three-quarters of impact investors in the GIIN survey, but goals like “empower all women and girls” are inherently subjective. Interestingly, the SDGs contain no specific reference to racial equity, although they do target aligned issues like criminal justice reform (“provide access to justice for all and build effective, accountable and inclusive institutions at all levels”) and institutional bias (“Reduce inequality within and among countries”).
Monday’s announcement that the UN’s Principles for Responsible Investment (PRI) are developing new outcomes and reporting standards for the SDGs is a step in the right direction, but it is not clear who has a say in setting those standards. This is not a new concern. Back when the SDGs were first launched, a group called Participate SDGs advocated for including people from marginalized communities in the design of the critical 17-goal agenda for 2030. The group ultimately won some concessions from the designers, but the implementation and measurement of these goals have largely lacked this type of participatory lens.
Today, as the impact investing community responds to the Black Lives Matter protests, the question of who decides what impact means is critical. Entrepreneur Omar Johnson, a former Apple VP, took out a full-page ad in the New York Times this past weekend to explain why merely hiring more Black people would not be enough to demonstrate racial equity: “[Racial equity] means helping Black talent climb the ladder, and turning over power and authority to rising Black leaders… Analyze where you are as an organization. Set goals for where you want to be. Put in place incentives to achieve those goals. Measure against them ruthlessly and relentlessly with KPIs. This is core-business stuff, not extra credit.”
A standard rating and measurement system that integrated the perspectives of the people who would know if the advertised impact was or was not happening — like the Black employees of a company that claims to be all about racial equity — would decrease tension, refocus reforms on where failure is most evident (and where success can be most instructive), and increase the ability to fact-check claims without a wait-and-see approach.
Impact investing is a new enough field that integrating something like this into the SDGs or another widely-used framework is not only possible, but desirable. Let’s use this moment to do it.