How impact investors can avoid “impact washing” and not get left behind.
“We are seeing dramatic changes in behaviour, which will change the behaviour of companies. The younger generation are not interested in buying products that can do harm and they are changing their choices, and investors have become aware of this. Pressures will become great from investors, and those companies that don’t believe in this, will find themselves replaced.” -Sir Ronald Cohen, Social Impact Pioneer
As climate change continues to accelerate and the COVID-19 pandemic exacerbates many social disparities, private investors and consumers alike are increasingly using their own pocket books to drive change. Today, 84% of investors want to use their investment dollars to fund social and environmental impact, but 66% of impact investors have concerns over “impact washing” (i.e., using jargon and marketing to claim impact without rigorous assessment). In addition, 72% of consumers buy more eco-friendly products today than five years ago, and 66% of consumers are willing to pay more for products and services from companies dedicated to social and environmental impact. People have access to more information at their fingertips than ever before, and they are using that information to make decisions about the brands they buy from, the partners they work with, and the companies they invest in. Businesses that don’t recognize and act upon this paradigm shift will fail.
As a business, impact investor, or fund manager, how can you position yourself for financial success and demonstrate alignment with the values of your investors and your customers? How can you simplify the process of tracking your impact (and the impact of your portfolio companies) without losing fidelity along the way (or an arm and a leg in consultancy costs)?
At Proof, we are using emerging technologies to track impact at its source and visualize real impact performance and adherence to ESG criteria. Our methodology uses metrics from the Global Impact Investing Network’s IRIS+ metrics catalogue and best practices from the Impact Management Projects’ Management Norms to quantify, compare, and benchmark social and environmental impact so you can see how you stack up against your peers. In addition, we are enhancing the International Finance Corporation’s Operating Principle 9 by independently and digitally verifying for impact based on real administrative and unit-level data, not just policies and procedures.
Instead of asking small social enterprises to report data manually in a lengthy online form, or requiring them to adjust their workflows exclusively for data purposes, we offer a toolbox of options for data collection, transmission, and performance management that work best for each organization or portfolio company based on their unique circumstances. Our “Build Your Own” Impact Measurement & Management Menu (below) encourages portfolio companies to select the best combination of digital measurement and management tools that work best for them, which are then transparently displayed on their dashboard.
One example of how we are helping social enterprises leverage technology for impact measurement is our partnership with the Industree Foundation in India. Through live connections with the Industree Foundation’s payment and timesheet tracking software, video remote work monitoring vendor, and direct SMS employee surveys, we are automating, strengthening, and verifying the Foundation’s commitment to sustainable supply chains with its major purchasers, including IKEA and TJ Maxx. This enhanced impact measurement and supply chain verification approach helps reduce the risk that purchasers are involved in harmful or unsustainable supply chains (with many retailers increasingly under fire for not doing enough to vet their supply chains). It also provides the Industree Foundation with greater access to and better terms associated with affordable purchase order financing among impact-minded investors and funds. In addition, as investors increasingly look for performance-based financing approaches where the achievement of impact targets trigger incentive payments (e.g., in the form of interest rate rebates), this level of technology-based tracking and verification opens the door for the next generation of impact investing.
As all of us collectively feel the growing pressure from the social and environmental issues facing our world, there will continue to be an increasing need for continuous, technology-based impact verification, both during the COVID-19 pandemic and over the long-term. As an impact investor or an impact fund manager, now is the time to transform your impact measurement and management strategy from an annual surface-level reporting exercise into an active and data-rich performance management process, reducing your risk and arming your portfolio companies with the tools they need to continually maximize their impact. That is what’s good for the world. That is what’s good for your business. And that’s the ultimate goal.
Proof is a technology company that measures, verifies, and manages social and environmental impact for investors, impact funds, and businesses around the world. For more information about our impact measurement and management methodology, visit our website.