Impact Auditing Remains a Minority Practice

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    Stockholm (NordSIP) – One of the most challenging aspects of sustainable and impact investment is tracking the effect that investments have on social and environmental factors.  To address this gap, on July 31st, the Global Impact Investing Network (GIIN) published the third report in its four-part 2023 GIINsight series titled Impact Measurement & Management Practice. 

    The report seeks to better understand how impact investors are assessing the social and/or environmental impacts of their investments and, crucially, how they are using impact performance data to inform their investment decisions. It highlights insights based on data collected from over 300 impact investors on their impact measurement and management (IMM) practices and offers the most comprehensive overview of IMM practice to date.

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    The main theme seems to be that IMM practices seem to be increasingly sophisticated. Most impact investors are aligned with development agendas, set specific quantitative targets and use GIIN’s IRIS+ system. However, only a minority of impact investors conduct impact auditing.

    The GIIN is a global organisation advocating for and supporting the impact investing industry, dedicated to increasing the scale and effectiveness of impact investing around the world. The network supports activities, education, and research that help accelerate the development of a coherent impact investing industry. This latest report is the

    “Our research reveals that impact investors are aligning more and more with global development goals to tackle key environmental and social issues,” states Amit Bouri, GIIN’s CEO & Co-founder. “Industry leaders are piloting innovative analytical tools and data systems to amplify impact performance in their target sectors. This not only elevates impact investment standards but encourages investors to continually set more ambitious goals, resulting in greater positive outcomes for their capital,” Bouri adds.

    How to Measure Impact

    There are five main takeaways from the report. First, the survey found that 77% of its respondents align their impact priorities with global development agendas, such as the Paris Climate Accords and the United Nations Sustainable Development Goals (UN SDGs).

    Second, among impact investors who set specific quantitative impact targets, 61% do so at the investment level and 52% of investors do so at the fund level. Third, only 15% of impact investors compare their impact results to peer groups. This is interesting because  76% of investors considered the inability to compare impact to peers a significant or moderate challenge in the industry, underscoring the need for more industry impact performance analytics.

    Next, the GIIN also found that its IRIS+ system is among the most commonly used tools and systems for IMM, with 78% of impact investors reporting using it. Other tools and systems include Sustainability Accounting Standards Board (22%), Global Reporting Initiative (19%), B Analytics / Global Impact Investing Rating System (16%), Harmonized Indicators for Private Sector Operations (12%), Joint Impact Indicators (12%), Aeris Cloud (4%) and Global Alliance for Banking on Values (3%).  

    Lastly, the GIIN report notes that just under half of investors (49%) are audited either internally or externally for impact management processes, and 46% of investors are audited specifically on their impact results or performance.

    Previous Reports

    NordSIP first covered the 2023 GIINsight series at the time of its launch. The first instalment of the series revealed general trends about the Impact investment industry. 71% of the organisation covered by the report were investment managers, followed by foundation (11%), development finance institutes and family offices (5% each), banks, insurance companies and endowments (all 2% each) and pension funds (1%), the remaining 1% covered ‘Other’ organisation, including sovereign wealth funds, diversified financial institutions and corporations. Geographically, 68% of the organisations surveyed were based in the USA and Canada (34%) and in non-Eastern Europe (34% as well). Subsaharan Africa accounted for 7% of the survey. The report also found that impact investors also make impact-agnostic investments and that a majority of impact investors target risk-adjusted market-rate returns.

    The second report in the series, 2023 GIINsight: Impact Investing Allocations, Activity & Performance, considered how impact investors allocate their assets across geographies, sectors, stages of business and asset classes, and critically provides an overview of financial performance. It found that investment in impact strategies has increased, with significant growth in public markets, housing and technology investments reflecting broader global trends. Total AUM grew from US$95 billion in 2017 to US$212.6 billion in 2022.

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