Editor's Note: The 2011 Social Enterprise Conference at Columbia University be held on Oct. 7, at Lerner Hall on Columbia's campus. Among the many social enterprise issues up for exploration and discussion, will be impact investing and measurement. Click here to register for the conference.
The last decade has given rise to tremendous growth in the impact investing sector. With such growth comes increasing recognition of the sector, but it also brings to light questions of impact investing's ability to effect substantive change. Stories about upwardly mobile farmers in remote villages are no longer enough to attract savvy socially minded investors. Instead, firms are being held to ever more robust standards to demonstrate the positive implications of their investments. More importantly, with the proliferation of organizations seeking to finance these projects, firms must demonstrate that their social returns are better than the next guy's. But how can we report standard measurements? There is no EBITDA (earnings before interest taxes depreciation and amortization) equivalent for social impact.
As many NextBillion readers are no doubt familiar, the Global Impact Investing Network's (GIIN) Impact Reporting and Investment Standards (IRIS) is a proposed response to these new developments in the space. First introduced in 2008 as a joint venture between Acumen Fund, B Lab and the Rockefeller Foundation, IRIS is a proposed methodology for standardizing measurement across the impact investing sector. IRIS offers a standard framework for reporting social, environmental and financial performance of impact investments.
What that means is that instead of different projects reporting different measures for the same thing, each organization will report their metrics using the same descriptive metrics within a standard taxonomy. For example, let's take two investments that finance mango growing operations. IRIS provides a guideline for reporting - both investments will report number, not pounds, of mangos produced in accordance with specific IRIS performance indicators, which makes the two investments more easily comparable.
Of course, mangos are easy to measure. What becomes more difficult is measuring the actual social impact of an investment. How do you determine the number of lives impacted by a given investment? Do you count the people who have been employed by the investment? How about their families? What about the consumers and their families? IRIS provides a methodology for dealing with some of these questions. For our mango growing operation, we can measure full and part-time employees, broken down into various descriptive demographics. We can also measure new customers during a given reporting period. Thus, reporting is aligned for all companies and firms can no longer overstate their impact. At the same time, new impact investors have guidelines for where to start when measuring and evaluating their investments and IRIS intends to compile submitted data to provide industry benchmarks.
Despite all the hubbub about IRIS, there are still many questions regarding its efficacy and whether social impact measurement can truly be standardized. In an effort to provide some transparency into the model, the KL Felicitas Foundation (KLF) and the GIIN jointly published a case study in April 2011 that discusses KLF's motivation for adopting the IRIS framework and details its application of IRIS across its active investment portfolio.
KLF is a family foundation founded by Charly and Lisa Kleissner in 2000 to "address poverty through its support of global early-stage social entrepreneurs and social enterprises, with a focus on rural communities." The Kleissners decided to implement the IRIS framework because they wanted to "illustrate the social, environmental, and financial success of the foundation; nurture their investments; evaluate future investments; and provide needed performance data to share with a growing community of impact investors." With increased transparency and standardization into impact investments, the Kleissners hope to drive more resources toward and awareness for the sector.
The case is extremely useful as it explains in great detail how KLF fit its investments into the IRIS framework, chooses key performance indicators and transitions its portfolio into this reporting structure. While a more longitudinal study will be necessary to examine the efficacy of using the standards, the implications of this report could be huge. The case is more or less a "user manual" for IRIS: it handholds the reader through the implementation process, illustrating its benefits and challenges. Hopefully it will encourage more firms to use the methodology, because more users can help refine the system further - and create a standard that increasingly hits the mark for the impact investing sector.
The Kleissners will discuss the case study in detail, including their experiences and the implications of adopting of IRIS throughout their portfolio, at the 2011 Social Enterprise Conference at Columbia University.
Please like NextBillion on Facebook, follow us on Twitter and/or join our LinkedIn group.