Ellen Maginnis
Partner & Head of Impact @ Volery Capital Parnters
last month

Thanks to Impact Frontiers for hosting a forum for such an important discussion.  Raising the Bar 1.0 and 2.0 have been such helpful contributions to the impact investment industry.  While voluntary standards around sustainability reporting and assurance have been around for a long time, it’s great to see the impact investing industry trying to get a handle on what constitutes complete and reliable information on impact.


There are so many good questions raised in the prompts of this post.  To knock a few off quickly….


Re: using the term verification

I think the answer depends on what exactly the objective of the framework/standard is, which has the potential to evolve from its current orientation (see suggestions below). Based on what is covered in Raising the Bar 2.0, “impact performance disclosure assessment” may be a more appropriate term, acknowledging that this is a mouthful to say – see suggestion below on the need for clearer standards on impact reporting as a critical step in
then determining what/how the information is verified.


Re: holding smaller/emerging managers to different standards. 

I think the answer is No, but the feasibility of doing so requires a significant shift in how the industry thinks about the measurement and management of impact.  For so many firms, IMM is not the core responsibility of investment professionals and is not integrated into the normal operations of an asset manager.  Because of this, IMM often requires separate staff, which only larger firms can finance.  If we fundamentally shift what it means to be an impact investor (and I would argue an investor of any sort!) the measurement and management of social and environmental factors would be a core responsibility of all investment professionals?), and therefore disclosure and assurance requirements would and should be the same irrespective of fund size.


Regarding areas to potentially build on from the Raising the Bar 2.0 framework, below are
some suggestions: 


Impact disclosure/reporting standards

I admittedly got a bit lost in the first part of this discussion thread with the focus on impact report verification.  There are many good prompts asked about the role of 3rd party verifications but to me the first critical step is clearer standards around impact reporting/disclosures.  The criteria laid out in the BlueMark report are an excellent step in the right direction and the points below are suggestions for how it could evolve further.  Once standards/guidelines for what constitutes quality impact reporting are better defined, then what, how, how often reports should be verified will become clearer.


Reframe impact –
The current framework focuses on impact as it relates to the impact thesis as well as “ESG” factors.  While this is still a common way of segmenting negative and positive impacts, I believe it further confuses the ability to tease out the impacts that matter to the people (and planet) that experience them (see materiality comment below).  Adopting the IMP’s definition on impact (positive, negative, intended, and unintended) and combined with a focus on material impacts would greatly advance the overall objective of disclosure.


Focus on materiality 

Impact investors (and I would argue all investors!) should focus and report on material factors from a point of view of well-being for people and the
planet and not just accountable to their specific impact objectives.  Impact as it relates to an impact thesis should be highlighted but contextualizing this as it relates to ALL material impacts is key to understanding the bigger picture.  There are so many examples of investors that have anchored their thesis on a small and immaterial impact, and no one is the wiser unless information on ALL material impacts is disclosed.  As a tangible example, I recently saw an investment in a payday lender made under the impact thesis of financial inclusion!


More emphasis on contribution

Investor contribution is touched on in the current framework but could be more heavily emphasized throughout all of the elements.  I also didn’t see any focus on enterprise contribution?  Both aspects are key to understanding impact.

Responsiveness is a related area that I would also suggest the framework could cover to encourage the disclosure of portfolio company and investor’s responsiveness to the impacts they’re having, particularly negative ones.


Potentially going bigger 

If one of the objectives of impact reporting for impact funds is to help asset allocators determine how to most effectively allocate capital, then reporting and disclosure need to go beyond what is captured in the current framework to include impact related areas at the portfolio level.  This includes matters related to DEI within the fund management team and aspects related to potential negative investor contributions (e.g. fund manager compensation ratios), to name a few.  This list can get long and overwhelming quickly and I recognize the need for incremental change in the right direction.  There are also a ton of great groups working on these types of disclosures. The recommendation here is to make sure this framework is clear about what it covers and what it does not, and how it relates to a broader set of impact related matters that should be transparently disclosed. 


This is such an important discussion and I’m looking forward to learning from others on this!  

Head of Impact Services @ The Good Economy
December 2022

Really enjoyed reading ‘Raising the Bar 2.0’ – an extremely valuable contribution to
the field.

But do we first need to ask the question: (Why) Do we need independent verification of impact performance reports? 

For impact performance data there’s a clear risk of material misstatements or errors, which creates a need for a third-party to check the data.

For impact processes, it’s a requirement of the Impact Principles, so there’s both clear criteria to verify against, and a clear driver to get verified. It also makes sense as IMM systems are ‘hidden’, don’t tend to exist in one document, and are rarely made public. I think it’s also hard to critically self-assess IMM systems as they’re a process, so the ‘learning/improve’ part of verification is really valuable.

But for impact reports themselves, don’t we first need standards or a set of agreed-on criteria for what should be included in investor impact reports before thinking about whether reports could/should be verified against these criteria? In my mind we’re having two conversations in the questions above: Q1 v all the other Q.

So a slightly adapted version of the first question (“what are the key aspects of a report…in order to provide a report consumer with confidence that the report is fair, balanced, and accurate?”) I think is the most important one.

In that light, the ‘completeness’ and ‘clarity’ framework in Raising the Bar might actually be more valuable for the former (reporting standards) than the latter (verification). To me, the pilot project seemed v useful to try and identify a set of criteria for reporting standards, not necessarily to test out the need to get impact reports verified. After all, once the standards for good impact reporting have been set, won’t it then be easier for report preparers to
self-assess against them (as reports are a product)? And as the report is all in ‘one place’ (unlike scattered IMM systems) and is shared widely to shareholders/stakeholders (also unlike IMM systems), market participants themselves will be able to more easily interrogate completeness/clarity?

In other words, is the value prop of report verification more ‘prove’ (so readers can know they can trust what’s written) or ‘improve’ (to help writers figure out what to include), or a bit of both? Guess I’m struggling to understand the ‘improve’ side once standards are set. And on ‘prove’, I think there’s the underlying issue that many investors at the moment don’t engage deeply with manager impact reports, so would getting a report verified help move the needle on this or not?

Mike McCreless
Executive Director @ Impact Frontiers
December 2022

Thanks for your thoughtful post Matt! All good questions. We’re in the phase of collecting questions and issues that will need to be thought through such as these, so this is very helpful.

Your post brought to mind two relevant papers I’ve read recently. As luck would have it, Sustainability Assurance as Greenwashing, by Donna Carmichael, Kazbi Soonawalla, and Judith Stroehle, is the feature article in this quarter’s issue of SSIR. It does not give one confidence in the efficacy of self-assessment by report preparers.

The second is Do Investors Care About Impact? by Florian Heeb, Julian Koelbel, Falko Paetzold, and Stefan Zeisberger. As per your comment, this paper does not give one confidence that better impact reporting — even verified impact reports — would in fact motivate different investment decisions.

Like I said, all good questions! Thanks for helping us think through them.

About this discussion
Towards Consensus on Impact Report Verification 
Impact Frontiers is launching an effort in 2023 to build consensus on a common set of elements that any impact report verification should include by verifiers, reflecting a common set of elements that constitute complete and high-quality impact reporting by investors. These will serve as a shared foundation that will enable appropriate consistency among methodologies used by disparate third-party verifiers, increasing the amount and quality of information about impact that flows up the capital chain.
“What can impact investors learn from evaluators (and vice versa)?”
Impact Ratings Math
Investor Contribution 2.0 – Discussion Forum

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