Good data for big capital

Sarah Gelfand

Last month’s issue of Alliance included thoughtful pieces that discussed both the promise and the limitations of data for philanthropy. We read the contributions with great interest at the Global Impact Investing Network (GIIN), a non-profit dedicated to increasing the scale and effectiveness of impact investing, and would like to add our observations on the key role that data can play in mobilizing additional resources for the solution of social and environmental problems.

At the GIIN, we believe that data collection and reporting is essential to a successful impact investing field, and that foundations have a valuable role to play in nurturing this.

Impact investments are made with the intention to generate positive social and environmental impact alongside a financial return. The burgeoning impact investing market has the potential to steer significant capital to complement philanthropic grant funding. It is already putting capital to work in sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology and financial services for the poor, among other areas.

Data is the language of investors
As Larry McGill noted in ‘Data for Good’, his article in the September issue, traditional for-profit investors are deep in the age of ‘Big Data’. These investors are accustomed to widely available data on financial performance. If we expect them to meaningfully integrate social and environmental considerations in their investment decisions, they must be able to similarly access data on the non-financial performance of impact investments.

Further, in order for these data to be useful, they need to be reliable and comparable. Many investors are prone to discount the integrity and credibility of social and environmental performance data – in large part because such data have, up to now, generally used customized, and therefore non-comparable, metrics.

A common data language to enable comparison and analysis
The GIIN has been taking measures to address this with our Impact Reporting and Investment Standards (IRIS) initiative. With support from impact measurement and sector experts, and incorporating best practice from the field, we have established a set of standardized social, environmental and financial metrics for tracking and reporting the performance of impact investments.

Founded in 2008 to provide a resource analogous to financial reporting standards, IRIS has since been adopted by hundreds of impact investors, and thousands of companies globally track and report their performance using IRIS-aligned metrics. As a result, impact investors and other funders using IRIS know, for example, that the number of poor beneficiaries from one project can be fairly compared with the number of poor beneficiaries from another.

But enabling side-by-side performance comparisons is only one benefit of common metrics. More importantly, and as many investors have told us, IRIS facilitates data aggregation, which is the foundation for the rigorous market intelligence that traditional investors rely upon. Aggregated data can increase understanding of the scope and breadth of impact capital, and establish benchmarks so that organizations and their funders can better understand performance relative to their peers and the field overall.

Using data to increase the scale and effectiveness of impact investment
As IRIS provides the fundamental language of impact measurement for investors, our partners are developing related tools and services, such as rating systems (eg Global Impact Investing Rating System by B Lab) and social data management platforms (eg PULSE by App-X), to help investors more confidently leverage social and environmental data. IRIS also creates the basis for third-party social and environmental performance auditors and impact analysts. These are all important components of mainstream investment performance management, and they enable impact investors to access and interpret social and environmental information with the tools and language they understand best.

As an evidence base for impact investment is established, the demand for data will only intensify, potentially leading to more readily available data, and simultaneously increasing the market’s potential to bring additional capital to the world’s most pressing problems.

Impact data is also critical to ensuring the social and environmental effectiveness of impact investing. Integrating non-financial data into impact investment performance management is essential to the prevention of mission drift and ‘greenwashing’. In the absence of credible and accessible social and environmental data, there is a real risk that the impact investing market will be assessed disproportionately on its ability to generate profit. In an effective market, impact investors, like grantmakers and other social funders, should look to impact data as they assess the merits of their own work and the field overall, and strive to achieve higher levels of social and environmental success.

The role of foundations in a coordinated impact data landscape
Foundations engaging with the impact investing market – with supportive grant funding, guarantees and programme- and mission-related investments – are increasingly collaborating with traditional investors to put different types of capital to work in support of the same project, or to hand on social business projects when they become investment-ready. In addition to providing funding, these foundations bring expertise in understanding and managing social and environmental performance, which is valuable for traditional investors. Alignment around a shared approach to performance management can put the different types of funders on the same page; it can help clarify what is credible, improve reporting efficiency, and ensure that the resulting data are useful across the whole market.

Of course, data alone will not solve the world’s problems, but it would be foolish not to take advantage of the ability to collect, aggregate, analyse and learn from it in the current age of Big Data. Philanthropy’s history of addressing the world’s most pressing challenges is important, but unfortunately grant capital remains a limited resource in the face of today’s social and environmental problems. A coordinated data landscape enables impact funders of all kinds to understand their performance in new ways, better communicate across the financing spectrum, and attract additional capital to the social and environmental problems of our day.

Sarah Gelfand is Director, GIIN. Email SGelfand@thegiin.org.
Melody Meyer also contributed to this article.

The special feature on ‘What can data do for philanthropy?’ was published in the September 2012 issue of Alliance magazine.  If you would like to receive this issue, discover more about subscribing to the magazine or contact alliance@alliancemagazine.org for further information.

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