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Decoding Impact Investing’s Alphabet Soup of Measurement Tools

Impact investors can engage with these tools to develop or enhance an existing impact management strategy.

Submitted by: Beth Busenhart

Posted: May 07, 2012 – 09:53 AM EST

Tags: pulse, giirs, impact investing, sri, data management

 
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By Beth Busenhart

As the PULSE product manager, I frequently receive inquiries from impact investors, nonprofit organizations, foundations, and other entities that start with a tongue-twisting question: “We’d like to start using PULSE-GIIRS-IRIS to track our impact and show the benefits in a measurable way. Where do we begin?”

It becomes instantly clear from these first contacts that there is a lot of confusion in the impact investment marketplace around what PULSE, GIIRS, and IRIS each bring to the table, how they work together, and how they are different.

Why is the distinction important? Because each tool plays a very distinct role.

In order to develop a meaningful and effective impact management strategy, it is important to know where to start. In this monthly series, we will decode the alphabet soup of impact measurement and reporting and provide a roadmap for impact managers to better understand how these tools can drive a theory of change by tracking impact, such as seats opened at inner-city charter schools or water systems built in India, in a meaningful way.

Before exploring their differences, it’s helpful to recognize that PULSE, GIIRS and IRIS have a shared goal: To increase the flow of capital to investments that solve social and environmental problems while generating a financial return. Each solution, however, plays a unique role.

So how are they different?

Impact Reporting and Investment Standards (IRIS)

Impact Reporting and Investment Standards (IRIS) is an initiative of the Global Impact Investing Network (GIIN) that provides a common language of indicators and metrics to define operational, social and environmental performance.

Impact Reporting and Investment Standards (IRIS)IRIS offers fund managers the ability to adopt and use these standard definitions to assess the financial and nonfinancial performance of their portfolio companies across a diverse set of sectors and geographies. Basically, IRIS is designed to play the role in impact investing that Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) bring to financial accounting.

PULSE: Data Management

PULSE is a data management tool that provides a streamlined way for organizations or funds to track, benchmark and report on financial, operational, environmental, and social data across an investment portfolio.

Pulse: Data Management for Nonprofits, Foundations and impact InvestorsPULSE runs on the Salesforce platform and can be integrated with an organization’s customer relationship management (CRM) program and other front office solutions such as deal tracking and pipeline management software. In a nutshell, PULSE helps managers consolidate and centralize extensive data, making it easy to access, search and use.

GIIRS: Third party Analytics

GIIRS: Ratings and Analytics for Impact InvestingGIIRS provides independent, third party ratings and analytics for the impact investing industry. Both companies and funds can be rated by GIIRS to assess social and environmental impact. GIIRS ratings are analogous to Morningstar investment rankings or S&P credit risk ratings but don’t take into account financial performance.

Build Your Impact Investment Strategy on the IRIS Foundation

With the definitions out of the way, how can impact investors engage with these tools to develop or enhance an existing impact management strategy?

1. Active Tracking of Social and Environmental Performance

IRIS alignment is a great place to start. For investors who are not actively tracking social or environmental performance data but wish to do so, the IRIS taxonomy provides concrete definitions that are aligned with industry standards. Investors with well-defined social and/or environmental performance objectives should review the IRIS framework and select the definitions that best measure these objectives, first for the fund at a high level, and then for specific indicators and metrics for each investment.

2. Aligning with Industry Standards

For investors who are currently tracking social metrics and wish to adopt IRIS and align with industry standards, the taxonomy should be reviewed and definitions selected that meet impact objectives. Any indicators selected can then be crosschecked with metrics currently being tracked. Existing metrics can be replaced with compatible IRIS metrics, or reporting practices can be adjusted to comply with the IRIS definition. If IRIS doesn’t provide a definition that’s compatible with a current metric, the existing metric can be maintained. One of the benefits of IRIS is the flexibility allowed to organizations and the autonomy to determine what metrics to track.

The adoption of IRIS provides a foundation for a successful strategy for measuring, assessing and reporting impact and managing portfolios. By aligning with industry standards, credibility and consistency are increased not only for individual funds, but also for the industry as a whole. This consistency also leads to the ability to compare one investment or fund to another within a portfolio or against industry benchmarks.

And IRIS also collects and aggregates data from organizations anonymously to help the industry identify these benchmarks.

Make IRIS Language Useful and Meaningful

With IRIS as a foundation, the other tools become more effective. Consider that the assessment required of companies and funds seeking a GIIRS rating uses IRIS definitions whenever appropriate in order to increase consistency and support the use of industry standards.

gibberishAlternatively, a review of the GIIRS assessment can help identify which IRIS indicators to adopt if the goal is to achieve a GIIRS rating. Here’s an important distinction between IRIS and GIIRS: IRIS provides the vocabulary while the GIIRS ratings make the IRIS language useful and meaningful.

For fund managers who want to establish a consistent reporting process around the IRIS taxonomy for an investment portfolio, the challenge is keeping track of the data over time and generating meaningful reports that look across an entire portfolio. Achieving this often requires a tool more sophisticated than an Excel spreadsheet.

This is where PULSE comes into play.

PULSE is a cloud-based software application that is preconfigured with the IRIS taxonomy. Investments and indicators can be tracked in a flexible, scalable way on the reliable Salesforce platform. In essence, PULSE is another way that the IRIS taxonomy can become useful as it helps organize impact data in a meaningful way. PULSE also allows fund managers to submit data back to IRIS anonymously in order to contribute to the aggregated industry benchmarks.

Consider the approach of Inveneo, a provider of sustainable and affordable information and technology solutions to organizations delivering vital services to rural and underserved areas in the developing world. Inveneo tracks impact metrics using the IRIS taxonomy and PULSE and in 2011 showed that it reached 126 communities and served 249,720 end users.

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Next: Sorting through the features and purposes of the GIIRS ratings and analytics platform and how they flavor the alphabet soup of impact measurement and reporting.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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