Impact investors can only truly grasp how well or how poorly your investments are doing by comparing your performance to something tangible. Whether it’s last year’s results, the performance of your peers or a threshold of required performance, these comparisons are crucial for gauging your success and making informed decisions.
Investors focused solely on financial returns find comparison straightforward. Ample performance data allows you to track your progress effectively. You can compare your performance to the previous year (e.g., the percentage change from last year), to peers (e.g., the relative performance in the same class, sector or geography) and to a benchmark (e.g., relative to an index or economic measure).
If you are an impact investor aiming for both impact performance and financial return, you face more challenges, and need to develop the discipline of sharing impact-relevant data and using tools to make similar comparisons.
Impact performance benchmarks
Imagine truly knowing whether you’re missing the mark or reaching success in terms of the effectiveness and efficiency of your impact results. This knowledge would significantly influence future decisions, mitigate greenwashing and increase the impact of an investment.
The GIIN’s Impact Lab has been testing impact performance benchmarks using investor-reported performance data for over three years. These pilot benchmarks, built on a standard methodology for comparing impact metrics, offer a window into what is possible. Ultimately, they are a step in the right direction for tracking impact performance.
A recent GIIN brief on impact performance benchmarks offers a practical – and troubling – example: Investments made by impact investors represented in the energy impact performance benchmark were associated with a median annual increase of 3.7% in Scope 1 greenhouse gas emissions. This contrasts sharply with the UN Environment Programme estimation that an 8.7% annual decrease is needed from 2024 to 2030 to limit warming to 1.5 C.
The data yields more insights when we drill down:
- Top performers: Investments at the 75th percentile saw a 5.8% annual decrease in Scope 1 GHG emissions, indicating that a quarter of the investments contributed the majority of emissions reductions.
This aligns with the broader global pattern that a small number of companies are responsible for a large proportion of emissions. While some investments are closer to the UNEP target, they are not close enough. Investors need this granularity of data to engage with their portfolio companies to hold data-informed conversations about their impact results and find solutions for improvement. - Regional differences: The benchmark research brief revealed that in the United States and Canada a 6% annual reduction in GHG emissions would align investments with the 1.5 C warming target, whereas in sub-Saharan Africa, a 3% annual reduction would suffice.
This shows that investors can set better targets by comparing their impact performance to peers, the market and the Sustainable Development Goals.
The GIIN’s benchmarking initiative provides tools for investors to make these informed choices. Additionally, investors who contribute data to the energy impact performance benchmark can see which percentile their investments fall into and how they compare to their peers.
Setting targets
Impact investors can take four key actions to contribute to this work, benefit themselves and strengthen the veracity of impact management tools:
Collect impact performance data. Collecting data, including GHG emissions, from investees and underlying assets is essential. With new climate disclosure rules in the U.S. and Europe, this will soon be not just a best practice but a legal requirement in many contexts.
Use threshold performance data to set targets. Setting targets based on evidence of the required scale, pace and efficiency of optimal impact performance is a powerful tool.
Engage in data-informed conversations. Transparent, data-driven conversations with investees and end-users can help keep investment companies on track toward their goals.
Share impact performance data with analytics providers. By sharing impact data with organizations like the GIIN, Novata, BasisPoint+, Proof.io, NetPurpose, 60 Decibels, Leonardo Impact, and ImpactableX, among many others, investors contribute to a growing body of data and analysis. This advances the capacity for all investors to better manage impact performance results. Asking analytics providers to offer the necessary impact performance analytics, especially if they currently do not, creates demand for the comparative performance data crucial for decision-making.
Comparing performance to widely used thresholds and peers provides a strong foundation for managing toward positive outcomes for people and the planet. Once you know how far off or ahead of the mark you are, it becomes hard to ignore the actions required to achieve meaningful impact results.
Dean Hand is the chief research officer of the Global Impact Investing Network.
