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Don't just invest, impact!

Submitted by: Elaine Cohen

Posted: Aug 16, 2011 – 07:31 PM EST

Tags: impact investing, ratings, giirs, sri, esg, csr, sustainability


By Elaine Cohen

There are many socially responsible investment options available in the market these days. Now there is one more. The creators of B Lab are championing "impact investment" to channel invested capital into socially and environmentally positive ventures. Is this new thinking or more of the same?

Impact investments aim to solve social or environmental challenges while generating financial profit. This is not about negative screening, avoiding sin stocks or channeling cash to companies which claim to do less harm. Impact investing is a proactive choice to direct capital to places where it can make a positive difference. The new framework which promises to make this easier than ever before is GIIRS: The Global Impact Investing Rating System.

GIIRS is currently in beta testing phase and set to fanfare officially at the Clinton Global Initiative next month. It offers a tool for rating the social and environmental impact of individual companies, as well as the aggregated impact of investment funds through the impact ratings of their underlying portfolio companies. The hope is GIIRS will command the trust of investors in a way which other SRI offerings are unable to do and will ultimately increase the amount of capital that is directed towards positive-impact companies.

GIIRS was not developed out of a desire to become another financially-driven, “me-too” SRI product aspiring to gain share in what is already a highly competitive market with more than $10 trillion of assets under management around the globe. On the contrary, GIIRS is the product of sustainability thinking, rather than purely financial imperative. It all started three years ago when The Rockefeller Foundation, an enlightened organization with a mission to advance "Smart Globalization," convened a group of institutional investors including JP Morgan, Prudential, TIAA Cref and others to consider what they might need to increase the amount of money they channeled into impact investments.

These investors cited the need for a third-party rating system to help them make investment decisions. The Rockefeller Foundation commissioned a study to assess impact methodologies available in the marketplace. The outcome was the B Impact Ratings System, similar to what B Lab developed to certify B Corporations but further along in terms of what investors were looking for. B Lab was asked by a group of investors to create a business plan for what has now become GIIRS.

B Lab was established in 2006 as a non-profit organization to "build a new sector of the economy that uses the power of business to solve social and environmental problems." The B Lab certification program currently covers 439 companies which have undergone third-party auditing and certification against an inventory of social and environmental criteria developed as the B Corp standard. In addition to the certification program, B Lab lobbies to promote Benefit Corporation legislation, creating a class of companies that deliver a material positive impact on society and the environment, redefine fiduciary duty to include non-financial interests in decision-making and report on social and environmental performance using recognized, third-party standards. Five U.S. states (Marlyand, Vermont, New Jersey, Virginia and Hawaii) have passed such legislation in the last two years. GIIRS completes the portfolio of core B Lab initiatives to transform the business and investment landscape into one that makes money work for good.

GIIRS is currently subscribed to by 25 investment funds representing $1.2 billion in assets with investments in 30 countries. One example is City Light Capital, a venture capital firm that invests in early-stage sustainable businesses in the U.S. The companies in City Light Capital's portfolio aim to save lives, reduce crime, increase literacy and education, protect individual rights and promote energy efficiency. Examples include companies that increase efficiency of electricity distribution via the national grid (Microplanet), mobilize resources for immediate news coverage of key events (Nowpublic) or manufacture sniper detection and location systems for increased public security (Shotspotter). City Light Capital is itself a B Corporation and discloses its audit results, as do all B Corps on the B Lab website.

I asked Beth Richardson, Director of GIIRS, to highlight for me what is so unique about the GIIRS tool. "Investors and investment advisors already have expertise in providing financial analysis. What has been missing in the marketplace is not financial analysis, but rather social and environmental performance analysis that is comparable, customizable and verified. GIIRS helps fill that gap. GIIRS is comparable (across geography, size and sector), comprehensive (looks at the whole company, not just its products), is transparent, has a positive impact focus, is appropriate for private companies and can be used as both an assessment and improvement tool. There is no other product in the marketplace that combines all of these elements." More of the same? Maybe not.

Equally, the measurement of impact does not mean the same for all. Within the GIIRS system, a degree of comparability is achieved because all companies are audited against the same B Corp standard. Companies seeking to be listed in the GIIRS need to undergo the B Corp assessment and, to this extent, a truly comparable rating can be achieved. However, it remains a challenge for B Lab, according to Beth Richardson, "to strike a balance between having a system that delivers a comparable rating across industry, geography and company size as well as keeping the ratings process to a reasonable threshold for entrepreneurs in terms of time and expense."

The progress made by B Lab in a fairly short five years or so looks impressive, though B Corporations still represent a relatively small group of under 500 largely small- and medium-sized companies. Perhaps GIIRS is the tool which will not only take impact investment to scale but also propel B Corps into the new business sector B Lab aspires to create. In this sense, GIIRS is not just more of the same.

About Elaine Cohen

Elaine Cohen is a Sustainability Consultant and Reporter at Beyond Business and blogger on sustainability reporting and author of CSR for HR: A necessary business partnership to advance responsible business practices

This commentary is written by a valued member of the CSRwire contributing writers' community and expresses this author's views alone.

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