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The ABC’s of Data-Driven Impact Investing

By Michele Demers Blog

Despite rising interest in impact investing, impact measurement has been unclear, and companies and funds lack the right tools to drive better reporting and transparency. An investment is only as strong as the data on which it relies. And now, state-of-the-art machine learning can be widely applied to impact investing, giving companies and funds no excuse not to measure outcomes.

Quantitative methods that generate accurate and reliable data can better predict social impact and drive investment decisions. Our new report Data-Driven Impact: A New Era of Impact Measurement explains the emerging importance of quantified impact. We thought it would be helpful to lay out the steps that savvy investors take to integrate impact measurement into their investment strategies.

The ABC’s of data-driven impact are:

Ask about Analytics: It is not sufficient to know that impact is being measured. Dig into the details. How is impact being measured? What metrics are being used? How is this being calculated? Has this technique been verified by a third party? Useful metrics can help you make better investment decisions, faster – and will drive greater social or environmental outcomes and higher financial returns.

Be Clear About Your Measurement Goals: What is the problem you are trying to solve? Do you understand the root of this problem? What are the milestones to solving this problem? New data-driven impact measurement products can resolve the complexity of extracting and weighing these impact goals to help you best achieve them.

Cut Straight to the Experts: The question of which framework to apply is frequently debated, yet the question of data quality is rarely discussed. There exists a myriad of impact measurement frameworks that track intentions versus actual outcomes. During the due diligence process, incorporate expert insights and integrate the metrics that have been provided by trustworthy sources. Use a resource like Boundless to help you find them.

Don’t be Afraid to Demand Better Data: Get clear on your questions so you know what kinds of data you are looking for. Is it climate impact data? Is it a diversity inclusion rating of a company or a fund? Once you are clear on what you need, you can hire the right team to obtain and analyze it.

Evaluate Efficiently: With the rapid development and availability of data, and improved awareness around data quality, the opportunity for data-driven impact measurement becomes clear. Investors should leverage these advances, moving beyond antiquated models to include sophisticated industry and company analysis, big data and machine learning. Investors can then drive not only stronger financial performance, but also greater social and environmental outcomes.

Forget about Old Definitions of Risk: Go beyond simple financial risk-return. Incorporate impact into your financial risk analysis. It is more central than you realize. Portfolio crushing regulatory, compliance or climate risks can derail a company quickly.

A new era is emerging around impact measurement, along with new tools that can better compare the social and environmental effects of competing business models. Savvy investors can integrate these Impact ABC’s into their due-diligence strategy to optimize their impact and financial performance.