This project will identify best practices in impact due diligence, which we’ll build into a free, practical toolkit for investors across sectors – including foundations, faith-based organizations, CDFIs, equity fund managers, institutional investors, and others – seeking to assess the expected social impact of their investments but who may not know where to start.
The impact investing industry has been focused primarily on assessing the social and environmental impacts of investments after capital has been deployed. Through PCV’s research and consulting engagements with numerous investors across geographies, asset classes, and impact themes over the past 10+ years, we’ve learned that the social and environmental performance reported by financed companies to investors has, in many cases, little to no influence on investment decisions.
Why? First, it’s difficult for investors to determine whether reported social and environmental performance is good or bad because benchmarks for performance are not readily available or are difficult to choose, and outputs are easier to assess than outcomes. Second, even if investors ascertain whether non-financial performance is strong or weak, it’s often difficult to apply lessons learned from one investment to decisions regarding other investments or to an investor’s overall strategy.
As a result, while impact measurement helps impact investors more effectively communicate their value to their funders and stakeholders, measurement systems have not enabled investors to demonstrably achieve more positive impact than they would’ve achieved had they not measured at all. But — by developing rigorous systems to assess an investment’s expected impact, asset managers will become equipped to more closely align their investments with their mission, and increase the likelihood their portfolios will reflect their values and the positive impacts they seek to support.
The development of this toolkit will be based upon lessons learned from designing customized social impact rating systems as well as research on trends and best practices in impact due diligence systems within the broader impact investing industry. While we’ve developed expertise in the design of effective impact due diligence systems through our work with partners like NCCLF, we expect to learn from the approaches other impact investors take to rigorously assessing mission alignment and expected impact and will incorporate best practices into the toolkit.
We’re excited to be working with Bridges on this project, and to announcing more in the coming months!
The full and original article can be viewed on PacificCommunityVentures.org
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