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August 22, 2016 at 05:53 AM
One effect of impact investing is that it encourages investors to focus on company metrics beyond the balance sheet. A new study shows that focusing on those metrics can help a company increase its value.
Impact investors use many tools and systems to measure social and environmental performance, the better to understand and maximize impact.
Many of these investors also use these data to generate strategic and operational value for their portfolio companies and themselves, the Global Impact Investing Network reported in a new study released this week.
As an example, GIIN cites Bridges Ventures, a specialist fund that invests in the health care, environmental and educational sectors in the U.S. and U.K. It collects data on customer and patient satisfaction and tracks metrics like the number of people its projects move off of unemployment, metric tons of waste diverted from landfills and the number of students enrolled or nursing homes built.
In health care, for example, the data the fund collects “engender trust among patients’ family members and improve patient retention,” GIIN says, and negative data can point to areas for improvement. Impact-related data can also foster goodwill among other stakeholders — governments, for example — which can help streamline approval and permit processes.
The GIIN report comes after a recent investigation by The New York Times on how private equity investments focused on aggressive cost cutting can hurt public services and even cost lives.
According to the GIIN report, impact measurement has always been a core component of impact investing. Ninety-nine percent of respondents in GIIN’s most recent investor survey said they measured the social and environmental performance of their investments.
More interesting, perhaps, 97% of respondents said measuring social and environmental performance was very or somewhat important because doing so can have business value, meaning it can improve the financial performance of investments and inform investment decisions.
Eighty percent of the survey’s respondents reported that they used data on investees’ social and environmental performance to inform business decisions.
“We are seeing an increasing fusion in the use of impact and financial data to make investments that not only optimize impact performance, but also help strengthen an investor’s business,” GIIN’s chief executive Amit Bouri said in a statement.
“Investors are continuing to find synergies between the social, environmental and financial aspects of their work, and they are applying these insights in ways that generate significant value for the investor, their investee companies, the beneficiary communities and the environment.”
The report was based on interviews with 23 investors (17 fund managers, three institutional investors and three foundations), six investees and one service provider. The interviews focused on each participant’s business strategy, measurement practices and use of collected social and environmental data. Target geographies included Africa, Asia, Europe, Latin America and the Caribbean, and North America, as well as global strategies.
