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Posted: February 24, 2012

Impact investments: Doing well…

...and doing good

Beth Busenhart

For those in the investment community, the term “impact investing” is a hot topic that is expected to get hotter over the coming months and years. Impact investments are investments intended to create positive social impact alongside financial return, and now more than ever, investors are taking an interest in investments that both do well and do good.

In fact, a recent report from the Global Impact Investing Network (GIIN) and J.P. Morgan estimates that global impact investing will see increased activity and interest in 2012, and that within the next 10 years, 5 to 10 percent of all investment portfolios will be allocated to impact investments.

Perhaps the largest and best-known player in the impact investing community is Acumen Fund, a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of global poverty. Acumen Fund, and others like it, invest in businesses and programs that are designed to make the world a better place. An impact investor might loan money to Pakistani farmers to invest in livestock, or invest in a company that provides clean, safe water to customers across India. This model provides social entrepreneurs with access to capital, contributing to a sustainable economy.

Like all venture capital firms, the goal is to create a positive financial return; but unlike traditional VC firms, all revenues are reinvested in the fund, and the goal of making money is second to the goal of having a positive and lasting social impact.

Impact Investing: What To Measure

By setting out to achieve two very different goals through one investment, one of the biggest questions among early impact investors is how to measure the impact of the fund. In fact, the concept of impact investing is so new that the same J.P. Morgan report identifies the lack of a track record of successful investments as the industry’s single biggest challenge.

To help overcome this challenge and streamline the process for tracking and measuring the social, environmental and financial performance of an organization, the GIIN introduced the Impact Reporting and Investment Standards (IRIS), a taxonomy for reporting the performance of impact investments.

At the same time, impact investors – and for that matter, investors of all types – are adopting the use of cloud-based technologies to help manage both the financial and non-financial metrics of investments more rapidly than ever before.

With the help of software that is integrated with the IRIS taxonomy, impact investors are able to track and benchmark their operational, environmental and social data to better understand which investments are having the biggest impact, and where to allocate future funds.

Additional advantages to using a cloud based system for tracking investments and impact include greater transparency across an organization and increased cooperation. When solutions are integrated with a CRM or customer relationship management software, investors have a full front office solution that can deliver powerful competitive advantage by organizing and leveraging institutional knowledge.

The combination of technology and taxonomy is paying off, particularly for investors like the Inter-American Development Bank (IDB). IDB is just one organization that is now using the GIIN standards and a cloud-based software solution that integrates with the bank’s Salesforce.com data to provide specific results about the organization’s investments that, in this case, are helping fight poverty in Latin America.

Beth Busenhart is the PULSE product manager at Application Experts, a Broomfield-based company that develops cloud-based software solutions to help alternative asset managers track the success of their investments. App-X provides PULSE, the only software on the market designed to track the non-financial results of impact investments, and AIM, one of the leading cloud-based solutions for tracking fundraising and fund performance. Beth can be reached at pulse@app-x.com.

 

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