Impact Voices | November 22, 2021

Adopting impact performance standards to hold sustainable investing accountable for real-world outcomes

Christina Leijonhufvud, Sarah Gelfand, Kelly McCarthy and Dean Hand
Guest Author

Christina Leijonhufvud

Guest Author

Sarah Gelfand

Guest Author

Kelly McCarthy

Guest Author

Dean Hand

“You can’t manage what you can’t measure” is a now familiar trope in sustainable investing circles, reflecting the belief held by some that the answer to our sustainability challenges is a universal ESG metrics set. 

With growing scrutiny over whether sustainable and impact investments are actually contributing to achieving the Sustainable Development Goals, the need for more reliable and verifiable performance reporting on sustainability and impact results is undisputable. A standardized, consistent set of metrics is undoubtedly a helpful tool for achieving comparability across investors against a baseline set of ESG considerations but is distinct from what is needed to achieve accountability for impact outcomes.

Acting on impact data is not about tracking a handful of universal metrics, but rather about evaluating how and which investment decisions can lead to better and longer-lasting outcomes for society and the planet. Investors and other stakeholders need access to information about the intentionality, context and distinct contribution to impact associated with impact investments. 

  • Clarity about the intentionality of an investment is key to understanding and evaluating the relevance of an investor’s goals and KPIs. 
  • Contextual information is key to interpreting the results. The scale of impact at a point in time, versus the pace of change over time, can tell an investor two very different stories of impact. Context also helps account for the qualitative aspects of pursuing impact, such as the scale of the sustainability challenge in a given market.  
  • Further, information about an investor’s engagement with their underlying portfolio is key to understanding their role in enabling impact, including the relative contribution of their capital and expertise. 

To put it another way, investors need access to a more complete set of information about impact. They also need tools to be able to interpret and confidently act on the information, especially if they are going to be able to make and manage investments in accordance with sustainability and impact goals and be accountable to the stakeholders they seek to benefit.

Private Markets ESG

Several initiatives are underway to harmonize measurement and reporting of ESG data, efforts that reflect the market’s thirst for more widely available, standardized and comparable information. While these initiatives could help establish a baseline requirement for ESG transparency, understanding progress towards and achievement of sustainability goals requires significant additional effort.

Two recent announcements aimed at improving the use of ESG data in the private markets signal progress, but also how much further we still have to go.

In the first announcement, a group of leading GPs and LPs with more than $4 trillion in combined AUM launched the ESG Data Convergence Project to “advance an initial standardized set of ESG metrics and mechanism for comparative reporting.” 

As part of the initiative, several GPs have agreed to track and report to LPs on six metrics across their investment portfolios, including: Scopes 1 and 2 greenhouse gas emissions, renewable energy, board diversity, work-related injuries, net new hires, and employee engagement. These metrics borrow from existing ESG measurement frameworks created by CDP, CDSB, GRI, SASB, TCFD, and others, and broadly align with the ‘Stakeholder Capitalism Metrics’ introduced in September 2020 by the World Economic Forum’s International Business Council (IBC).

As Marcie Frost, CEO of CalPERS, put it: “We have found it challenging to effectively measure impact in our private equity portfolio because of the multitude of frameworks and definitions used by GPs and LPs. This initiative simplifies sustainability reporting by using comparable metrics which allow us to gain insight into the investment risks and opportunities in our private markets portfolio.”

The second announcement (less than a week later) was the launch of Novata, an ESG data hub designed to “enable private companies to collect, analyze, benchmark, and report relevant ESG information,” which was backed by a consortium of non-profit and for-profit leaders including the Ford Foundation, Omidyar Network, S&P Global, and Hamilton Lane. The 10 metrics chosen by Novata include a combination of Environmental issues (e.g., GHG emissions, water and wastewater management), Social issues (e.g., employee safety, data security), and Governance issues (e.g., board diversity, business ethics), all of which align to various established ESG frameworks.

Meanwhile, in the broader financial markets, the IFRS Foundation announced the much-anticipated launch of the International Sustainability Standards Board (ISSB) to develop “a comprehensive global baseline of high-quality sustainability disclosure standards.” The ISSB will build on the work of existing investor-focused reporting initiatives, with the IFRS Foundation committing to consolidate the teams and expertise of the Climate Disclosure Standards Board (CDSB) and Value Reporting Foundation (VRF) under a new board. 

The inspiration behind this effort, according to Erkki Liikanen, Chair of the IFRS Foundation Trustees, is that “to properly assess related opportunities and risks, investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements.”

Impact performance reporting

If only the answer to decision-useful impact performance reporting were as simple as aligning on a universal, standardized set of metrics.  

Harmonized metrics, data aggregation platforms, and widely accepted disclosure standards are all foundational elements of a marketplace that supports greater ease of comparison, benchmarking, and investment decision-making. But the question remains: will such data contribute to better understanding of achievement of sustainability and impact outcomes and improved capital allocation towards investments that steward human and natural capital? 

It’s one thing for investors to report on a universal set of ESG datapoints, based primarily on their relevance to financial performance. But it’s quite another to provide reliable and balanced information about the contribution of investments to broader social and environmental outcomes. 

This higher bar for impact performance reporting is the north star for the impact investing industry, and a prerequisite for unlocking capital at a scale large enough to address today’s urgent climate and social inequity crises.

To address the information gap that limits flows of capital to and contributes to skepticism of sustainable investing, the market needs reporting and disclosure standards that reflect the broader set of factors required to assess impact results (positive and negative) and risks.

Clearly, more work remains to be done to harmonize impact performance reporting, including agreeing on the scope of content to be included, the desired frequency and format of reports, and a market-acceptable mechanism for independently verifying the completeness and quality of these reports. Several organizations are actively working to address this challenge, including the GIIN, B Lab, BlueMark and UNDP’s SDG Impact team, each of which is committed to a stakeholder-centered approach that goes beyond the financial materiality prism still governing much of the sustainable investing market in the U.S. and other jurisdictions. 

In May 2021, after a lengthy public comment period, the GIIN released COMPASS: The Methodology for Comparing and Assessing Impact to provide impact investors and service providers with a “methodology to assess and, most critically, compare impact results.” This work builds on the GIIN’s IRIS+ system, and several years of gathering real-world impact performance data at the investment level, to provide guidance on calculations and approaches for interpreting change in impact over time as well as for assessing impact performance relative to the size of specific social and environmental solutions gaps. The COMPASS methodology reflects aspects of several industry-wide efforts designed to bring more rigor and meaning to analysis and comparisons of impact performance data. 

In July 2021, BlueMark and the GIIN each received funding from the Tipping Point Fund on Impact Investing to conduct separate yet complementary research, in consultation with market actors, to clarify needs and opportunities related to the verification of impact performance data. These research efforts build on the recognition that independent assurance is key to increasing confidence in the quality and objectivity of reported information as well as to facilitating impact performance benchmarks that are built from a base of relevant and reliable data. For the industry, this work is foundational to evaluating impact performance at scale, and essential to driving the market upward toward ever improved impact yardsticks (disclosure: BlueMark is a sponsor of ImpactAlpha).    

Ultimately, the emergence and market adoption of robust impact performance reporting standards and verification services, and the public availability of data about industry performance will contribute to enhanced accountability and confidence in impact investing and its role in helping to achieve our shared sustainability goals. These additional pieces of the puzzle are critically needed for a marketplace to effectively allocate capital for transformative impact.


Christina Leijonhufvud is CEO and Sarah Gelfand is managing director at BlueMark. Kelly McCarthy is director of Iris and impact measurement and management and Dean Hand is research director at the Global Impact Investing Network.