From interesting data … Impact Management for Everyone www.im4e.org Karl H Richter @KarlHRichter
…to evidence with meaning From interesting data … Be alert to different perspectives When viewed from the place of Nelson Mandela ’ s capture by the police Sustainability (impact) is in the eye of the beholder Place: 29°28'06.1"S 30°10'15.7"E Date: 5 August 1962 Fact (x1) + Interpretations ( ∞ ) = Insights ( ∞ ) 50 columns, built 50 years after arrest
Context Agenda ▪ From measuring impact towards managing impact i) What is impact investing ? ▪ From counting “what” happens to understanding “why” things happen* 1. Different pathways ▪ The “why” informs “ what “ to (6 strategies) measure, & “how” to measure it ▪ Empowered to select indicators 2. A common journey appropriate (1 process) ▪ Ultimately – better judgement • From compliance… 3. Tool-kit of useful things > management information (methods & techniques, use according > strategic decision making to your strategy) * OECD: Outputs measure the results of production, outcomes assess the effectiveness of decision-making in achieving goals
What is impact investing ?
Sustainable Finance<>Impact Investing. What’s the difference? The media often uses the terms interchangeably, sometimes also with ethical/ responsible investing etc * Updates: - Impact Investing: $228 billion in 2018, $502 billion in 2019 (GIIN https://thegiin.org/research-and-opinions/) - Sustainable Investment: $30.7 trillion in 2018 (GSI, http://www.gsi-alliance.org/wp- content/uploads/2019/03/GSIR_Review2018.3.28.pdf Discrepancy: 200x (0.5%) * - - - - - - - - - - - - - - - - - - - - - - - - Need to clarify definitions
Definitional characteristics * For creating YOUR definition for profiling, segmenting and comparable analysis Entitlement/ 1. Asset class Equity Debt Underwriting Direct holdings Grants rights Capital or Stock, shares, Loan, bond, Guarantee, Social Impact Cash, 2. Financial instrument revenue grant, units quasi-equity insurance Bond, etc. commodities debt relief 3. Stage of development Maturity of investee organisation Funding stage of investee 4. Thematic area Type of activity Target beneficiary group Social concern 5. Legal ownership Source of capital Legal form of investee Investment vehicle 6. Geography …of capital owner …of investment manager …of frontline organisation …of target beneficiary Preserve capital/ Below risk- Commercial risk- Commercial 7. Business model viability § Full subsidy Partial revenue break-even adjusted returns adjusted returns windfall (alpha) Interpret 8. Methodological intensity † Avoid harm Want good Get facts Explain why Assess effects meaning
Different pathways 1.
Different stakeholders have different needs I am a I am a I am a I am an I am a faith-based policy fund institutional foundation investor writer for manager asset owner the public I am a sector I am a venture I am a corporation philanthropist I am an private listed on a NGO/ NPO investor stock charity exchange Definition of sustainability (impact) + purpose for data = methodology Less intense More intense Impact management methodology Prescriptive requirements/ standardisation/ factual (x1) Descriptive specification/ customisation/ interpretive ( ∞ )
Spectrum of capital (…or management mandates?) Sustainable & Responsible Green Investment Social Investment Investing (SRI) Traditional Responsible Finance Thematic Investing Sustainable Finance Philanthropy Finance (Negative screening) (incl. Faith Based) ESG ESG Impact Investing (Risk Management) (Opportunities) Inputs Activities Outputs Outcomes Impact No impact Max impact Max financial return Benefit stakeholders Don’t consider impact Do no harm Contribute to solutions No financial return Sometimes – not always ! Inputs Outputs Stakeholders Outcomes Evidence Value Contribution Materiality No linear relationship between financial return and impact Outputs Outcomes Impact Principles Purpose Plus: inconsistent and overlapping of definitions Less intense More intense Impact management methodology
Discrete pathways for the impact management journey Select the pathway that suits your definitional framework and mandate for impact management Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning Do not consider Know what you Know what you Describe what Understand why Enumerate the Enumerate impact do want happens by do not want outputs happen intended effects positive and enumerating based upon of actions on negative outputs specific inputs stakeholders outcomes, and actions intended and unintended, assess change over time Many interpretations Incontrovertible data (x1) of each data point (∞) Less intense More intense Impact management methodology
Pathways of methodological intensity Different levels of resource (time, money) and expertise required Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning
Impact risk (pathways signal process rigorous – not amount of positive or negative impact) Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning Risk of: • intended impact not happening • unintended effects/ side-effects (positive or negative)
A common journey 2.
Common journey for Industry processes * DEMING Quality * Mapping to industry process is indicative only impact management Management Public Policy Design UNDP Programmes Private Investment/ Public Securities/ Cycle Listed Corporations & implementation & Projects OTC Transactions Capital Markets Repeat as cycle/ continuous improvement 1. Introduction, Voluntary Pledges Problem Clarify intentions Road Map Sourcing & or Legislative Identification Screening Obligations Select Labelling/ 2. Submit IPO Policy Reporting Regime/ Plan Select approach Application to Country Analysis Due Diligence Regulatory Formulation Exchange Domicile 3. Potential Analysis Policy Define Targets & Set targets & Investment Adoption & Strategic Planning Select Strategies Implementation Valuation Investment 4. Decision, Term Measure, Collect & Do assessment Do Implementation Review Application Sheet & Capital Validate Data Deployment Policy Evaluation 5. Vetting/ Due Analyse & Evaluate Analyse data Check Evaluation Diligence for Data Admission Post-Investment Monitoring, 6. Evaluation Develop Indices Reporting to Report & Report findings & Tracking Markets & Disclose Results Benchmarks Authorities Act Closure Action by Exec./ 7. Value Building Exchange Traded Evidence-based Consumers/ Take action & Products for policy design/ Shareholders/ Investors Exit/ Refinance re-design Markets
Pathways of methodological intensity Different levels of resource (time, money) and expertise required Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning Clarify intentions Select approach Set targets Do assessment Analyse data Report findings Take action
Example application - a rubric for practical action 1. Definitional framework > Market Segmentation 2. Common Processes > Quality Assurance 3. Common Functionality > Software (Assisted workflows) 4. Basis for Data Interoperability > Reporting Impact Management for Everyone Rigour www.im4e.org 5. Resource Allocation > SDG Prioritisation
Tool-kit of useful things 3.
Methods & techniques (Cumulative) Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning Exclusion criteria (negative screening) Inclusion criteria (positive screening/ activity filters/ goal alignment) Principles (norms) Labels & certifications (binary pass-fail) Ratings & indices (absolute score/ relative ranking) Track KPIs against targets (outputs/ primary impact) Theory of causation Appraise decision-making Deep analysis
Methods & techniques (…continued) Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning General considerations – burden of proof • Levels of Evidence (Anecdotal <> Scientific) Self reported or 3 rd Part Assurance • (e.g. Green Bonds)
Methods & techniques (…continued) Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning ✓ ✓ ✓ ✓ ✓ ✓ - Exclusion criteria • Negative screening
Methods & techniques (…continued) Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning ✓ ✓ ✓ ✓ ✓ - - Inclusion criteria • Positive screening • Activity filters • Goal alignment
Methods & techniques (…continued) Agnostic Want Get Explain Avoid Assess Interpret good facts harm why effects meaning ✓ ✓ ✓ ✓ ✓ - - Adhere to principles • Norms & conventions • Best practices to consider ESG issues • Commitment to disclose / report
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