Impact Measurement
The following is a brief overview of organizations that either rate (provides a score or symbol) or evaluate and report on an investment’s social or environmental return. It is meant to reflect the types of organizations (among many) that assess the ancillary returns of mission investments. Download a brief Ratings Primer (pdf), covered as well below with links to organizations.
The craft of measuring the social and financial returns, and thus determining if an investment meets a foundation’s mission investing guidelines, is a critical part of the MI process. Financial returns can often be measured against established benchmarks such as the Barclays Capital Aggregate Bond Index for fixed income products, the NCREIF Property Index for equity real estate, the Thomson Financial Venture Economics Index for venture capital, or the S&P 500 for public equities. While measuring the social returns remains a difficult task, there are a number of initiatives underway to help foundations assess the impact of their mission investing portfolios. This section highlights different social performance measurement tools across investment products:
- For Corporations
- For Deposits, Loans, Community Development Investments
- For Real Estate
- For Venture Capital
- Initiatives to Advance the Field
For Corporations
B Lab, is a non-profit organization dedicated to building the infrastructure to accelerate the development of social capital markets by promoting and certifying B Corporations -- high-impact companies that create benefit for all stakeholders, not just shareholders. To certify companies, B Lab developed the B Ratings System – a transparent, comparable and publicly available assessment tool of a company’s social and environmental performance. The B Survey is web-based and designed to be comprehensive yet simple enough for small and medium sized businesses. Every company that takes the survey receives a B Report – a report that summarizes the performance on the B Ratings System. In addition to individual companies, the B Ratings system is being utilized by investors, membership associations, consumer guides, and consultants to evaluate companies’ social and environmental performance.
Low-profit Limited Liability Company (L3C), a form of a Limited Liability Company (LLC), L3C is a for-profit entity legally structured to engage in socially beneficial activities. The structure allows companies to qualify for Program Related Investments (PRIs) as the legislation was written to dovetail with the federal IRS regulations relevant to PRIs. The L3C was first adopted in Vermont in April 2008 and has since been adopted in Michigan, Utah, Wyoming, and in consideration in several other states as well as at the federal level. Robert Lang, CEO of the Mary Elizabeth and Gordon B. Mannweiler Foundation, who created the L3C, calls the L3C “the for profit with a non profit soul.”
KLD Research & Analytics is designed for investors and money managers who integrate environmental, social and governance factors into their investment process. They maintain SOCRATES, which is a comprehensive web-based research database that measures the social and environmental performances of corporations.
Trucost is an environmental research organization that helps companies and investors measure and reduce their environmental impact.Trucost’s Carbon Footprint Analysis, among other features, calculates the carbon performance (expressed in financial terms) of each company in an investor’s portfolio and compares the fund’s carbon costs relative to its benchmark.
Innovest Strategic Value Advisors (Aquired by Risk Metrics in 2009), an international investment research and advisory firm specializing in analyzing “non-traditional” drivers of risk and shareholder value, Innovest rates more than 2,000 publicly-traded companies from the world's major stock exchanges and provides subsequent company profiles evaluating corporate performance in four strategic areas: Environment, Strategic Governance, Stakeholder Capital and Human Capital
Michael Jantzi Research Associates (Canada-based), an independent investment research firm that evaluates and monitors the environmental, social, and governance (ESG) performance of global securities, Jantzi provides global coverage of ESG research through their databases and their PortfolioEdge™ services.
SAM Group (Switzerland-based) ranks among the leading investment groups worldwide in the field of sustainable investing. SAM has consistently asserted its role as a pioneer in sustainability investing by developing innovative investment solutions. In cooperation with Dow Jones Indexes and STOXX Limited, SAM Group publishes and licenses the Dow Jones Sustainability World Indexes (DJSI), a series of global sustainability benchmarks launched in September 1999.
EIRIS: Ethical Investment Research Services (UK-based), a global provider of independent research into the social, environmental and ethical performance of companies. A UK based organisation with an office in the USA and a representative office in Japan, EIRIS provides comprehensive research of more than 2,800 companies in Europe, North America and Asia Pacific.
RiskMetrics Group, a leader in risk management, corporate governance and financial research & analysis, RiskMetrics Group works to continuously innovate around these disciplines. They’ve conducted extensive research on the impact of ESG issues in investments.
For Deposits, Loans, Community Development Investments
The National Community Investment Fund (NCIF) Social Performance Metrics Database tool allows an investor to search all domestic banks and thrifts according to an institution's organizational, financial and social performance data. The tool helps an investor in the investment decision-making process identify banks that have a high proportion of their home lending to low to moderate income communities (Development Lending Intensity) and institutions that are targeting a significant portion of their branches to these areas (Development Deposit Intensity).
CDFI Assessment and Rating System (CARS™) rates Community Development Financial Institutions (CDFIs) in the areas of Impact Performance and Financial Strength and Performance. The Impact Performance rating is an assessment of the CDFI's effective use of its financial resources to achieve its stated mission. It includes the CDFI's own evidence and data of how its activities contribute to its mission. CARS™ subscribers receive the Impact Performance rating (on a scale of AAA, AA, A, B), the Financial Strength and Performance rating (on a scale of 1 to 5). The Financial Strength and Performance Rating uses a CAMEL (Capital, Assets, Management, Earnings, Liquidity) analysis of the CDFI to assess the CDFI's overall creditworthiness.
The Community Development Financial Institutions (CDFI) Fund has developed a Community Investment Impact System (CIIS) is a sophisticated web-based system that allows for the collection of institution and transaction level data from Community Development Financial Institutions (CDFI) and from New Markets Tax Credit (NMTC) Program allocatees.
Calvert's Social Return Calculator measures the social return of investments. The tool is used to approximate an investment's impact based on previous years' social return from loans made by Calvert Foundation to organizations in the same region or impact area. The investor receives a personalized “Community Impact Statement” based on targets established for each investment that detail the social returns created.
For Real Estate
Leadership in Energy and Environmental Design (LEED) is a recognized green building certification system that provides third-party verification that a building was designed and built using a series of metrics: energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality, and stewardship of resources and sensitivity to their impacts. The LEED process awards certification levels ranging from silver, gold, to platinum for a variety of building types. The recent LEEDND standards (in the pilot phase right now) include a variety of social criteria in their rankings. LEED was developed by the U.S. Green Building Council (USGBC).
Green Globes provides an online assessment protocol, rating system and guidance for green building design, operation and management. It provides market recognition of a building’s environmental attributes through third-party verification. The Green Globes system is used in Canada and the USA. In the USA, Green Globes is owned and operated by the Green Building Initiative (GBI).
Enterprise Green Communities has created a green criteria that contains information that addresses aspects such as: Integrated Design, Location and Neighborhood Fabric, Site Improvements, Water Conservation, Energy Efficiency, Materials Beneficial to the Environment, Healthy Living Environment, Operations and Maintenance. The Green Communities criteria are aligned with the LEED Green Building Rating System. The US Green Building Council, through LEED, supports the Green Communities initiative. In addition, the Green Communities criteria reflect and are compatible with leading state and local green building programs.
For Venture Capital
Pacific Community Ventures, Social Return on Investment Analysis (SROI), performs an analysis on social returns as driven by the investor. Metrics that are measured include: overall job creation, job quality (e.g. wages, benefits, wealth-building), diversity, green benefits and flows of capital to underserved markets.
SJF Ventures invests in sustainable companies and their advisory services arm produces an annual positive impacts report for the organization. Statistics include jobs created for low to moderate income individuals and environmentally friendly products such as recycling, photovoltaic systems, waste reduction and reduced energy loss systems.
Trade Associations such as the Community Development Venture Capital Alliance (CDVCA) Measuring Impact Toolkit contains survey formats, instructions, and a data map that community development venture capital funds can download and use to show investors their performance on the investment’s impact to the employee, the community, and the environment.
Initatives to Advance the Field
With the support of The Rockefeller Foundation, Sara Olsen and Brett Galimidi of Social Venture Technology Group compiled a Catalog of Approaches to Impact Measurement
The Rockefeller Foundation, Acumen Fund and B Lab initiated the Impact Reporting and Investment Standards (IRIS) effort to create a common framework for defining, tracking and reporting the performance of impact capital. The IRIS initiative will build on the significant prograss that has already been made to create a common language that will allow comparison and communication across the breadth of organizations that have social or environmental impact as a primary driver.
In 2008, the Bill & Melinda Gates Foundation commissioned a scan of the landscape of integrated cost approaches to measuring and/or estimating value creation in the social sector. The resulting paper describe and analyze eight such approaches.
RPI Criteria Developed using the Delphi Method is a research effort produced by the Boston College Responsible Property Investing Center and Gary Pivo, University of Arizona, to gain consensus from 50 investors, real estate professionals and academics on the materiality and social utility of key metrics for evaluating responsible property investing performance, published in Building Research & Information.