By Beth Busenhart and Flory Wilson (pictured)
As we continue to explore the co-mingled flavors in the alphabet soup of impact investing, anyone familiar with the concept of Morningstar investment rankings or Capital IQ financial analytics will identify the role of GIIRS Ratings & Analytics (“GIIRS”) immediately.
When trying to decide where to invest money, there is no shortage of options in the marketplace. From mutual funds to private equity, the universe is diverse, and each category offers a systematic way for investors to evaluate vehicles, largely based on financial performance. Impact investing should be no different, however, the evaluation should also include an assessment of social and environmental impact, such as the number of housing units built, children fed or seats opened in schools.
GIIRS Ratings & Analytics provides a methodology for evaluating investment opportunities within the category of impact investing. The GIIRS Impact Ratings and Analytics platform work in tandem to gather and make available meaningful data that can be used to compare and contrast investment options in the impact space.
To achieve true blended value, it is not enough for an investment portfolio to show only a financial return alongside an annual report filled with anecdotal information on social benefits, perhaps in the form of a corporate social responsibility report or similar. To get the clearest picture of impact and deliver a “wow” factor to stakeholders, an investment portfolio ideally should demonstrate that financial return is a direct result of a socially responsible business model delivering profitability through sustainable practices.
What is a GIIRS Impact Rating and how does it work to evaluate impact?
For impact investing to achieve credibility as an asset class, investors need a reliable way to compare investment opportunities and measure the performance of a fund’s portfolio over time. To meet this need, GIIRS has built a rigorous assessment process for both companies and funds. Data is self-reported by companies and reviewed by a third-party verification service provider, Deloitte & Touche, before a company can receive a rating.
Fund ratings include a weighted average of underlying portfolio companies as well as an assessment of the fund managers themselves. A GIIRS Impact Rating includes an overall rating and impact area (Governance, Workers, Community, Environment) ratings as well as key performance indicators (KPIs) specific to the industry in which the company operates, geography, size and mission. Roughly 30 of the KPIs included in the GIIRS Impact Assessment are from the IRIS taxonomy, and throughout the assessment, IRIS definitions are utilized to ensure compliance with the impact industry standard language.
GIIRS Analytics provide a logical extension of the GIIRS Impact Ratings by making collected data and KPI information available to the investment community for due diligence, advanced reporting and benchmarking.
GIIRS, IRIS and PULSE: Competitive or Complementary?
With the availability of GIIRS for entering data and receiving ratings, the IRIS taxonomy for using a standard language on impact performance and publishing impact data reports, and PULSE for collecting, tracking and reporting impact data, some companies and funds may wonder if these tools represent competing solutions for the industry.
Depending on the needs and goals of the company or fund, there is a business case for an organization to employ one or all of the tools. They do work in a complementary way to fill different needs at different times. While the value proposition may seem nuanced now, it will become clearer how each product serves a specific niche as the industry scales.
Consider how GIIRS supports the standards defined by the IRIS taxonomy but has a market based strategy at its core. A stated goal of GIIRS is to drive capital to impact investments. The role GIIRS plays in this process is to provide a comprehensive, comparable and verified measure of positive social and environmental impact for funds and companies and an analytics platform that allows investors and fund managers to manage and benchmark across a broad portfolio of impact data, create customized reporting, and screen mission-aligned companies and funds.
Separately, IRIS provides a foundation for measuring and demonstrating impact by identifying and defining standards for the industry. But IRIS also releases a data report.
So how is it different?
The IRIS data report is a performance analysis for the impact investing industry made up of aggregate data anonymously contributed by organizations. The purpose of this report is to provide insight into the overall performance of specific sectors of the industry from an impact standpoint.
A common misconception about GIIRS and PULSE is that they are alternative solutions. This could not be further from the truth. PULSE finds its sweet spot as an internal management tool for collecting, tracking and reporting on impact data. This is different from GIIRS, which provides the means for a company or fund manager to make the results of mission driven work available in a transparent manner by obtaining a rating and benchmarking performance against peer organizations in the same sector, geography and size.
Using PULSE as the basis for its internal technology strategy around impact management, a fund manager or company will be in a position to leverage the wealth of data across an entire portfolio of projects or products. This will allow for better decision making with regard to new investments or strategic direction.
As part of ongoing efforts to educate on these tools, it is important to keep in mind that impact investing, as an industry, is in its infancy. Early adopters and thought leaders are feeling their way to make a case for the power of conscious capital. The teams at GIIRS, PULSE and IRIS all believe in the benefits of cooperation and transparency to help bolster the efforts of those doing the hard work for social and environmental change.
Flory Wilson is the director, international for GIIRS at B Lab. She joined B Lab in April 2010, working on the core team that has launched the Global Impact Investing Rating System (GIIRS) Ratings & Analytics. Flory chairs the Emerging Markets Standards Advisory Council that crafted the GIIRS rating methodology and led a beta-test of the GIIRS assessment in early 2011 that involved over 200 companies and 25 leading impact investing funds in 30 different countries. Flory also focuses on business development; working with emerging market based mission-driven enterprises, investment vehicles and impact investors who are using GIIRS Ratings & Analytics, and GIIRS' communications efforts. Flory can be reached at firstname.lastname@example.org.