Impact Financial Integration | Setting & Achieving Integrated Impact & Financial Portfolio Goals Impact-financial integration aims to help investors increase their portfolio's overall impact, financial performance, or both
Introduction
Portfolio-level improvements in impact and financial performance take time to materialize. Nevertheless, preliminary results of early adopters are promising. Two members of the first Impact Frontiers cohort, IDB Invest and Root Capital, both implemented the approach by 2017 or before. Since then, both organizations have either improved both the impact and the financial performance of their portfolios, or have improved one while holding the other approximately constant.
“This approach helps us to communicate with our investment committee and our Board about which investments we are doing and why. Our portfolio has different segments, which make different impact and financial contributions. This helps show how those segments fit together to create a portfolio that achieves the organization’s overall goals.”
Alessandro Maffioli, IDB Invest
Impact and Financial Performance of Root Capital's Portfolio, 2015 - 2018
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Measuring Portfolio-level Impact
Investors in the first Impact Frontiers cohort use various methods of measuring and reporting portfolio-level impact.
Some report on the average impact rating of the investments in each fund, weighted by investment size. Others identify a small number (typically three to six) high-priority impact indicators to measure and report on portfolio-wide.
In general, rather than selecting a single highest-priority impact metric and setting hard targets around it, many investors prefer to build integrated dashboards of the most important financial and impact portfolio indicators. Investors use these dashboards to make sure that key impact and financial indicators remain within acceptable ranges at the portfolio level, while prioritizing one or two measures of impact performance to improve on each year.
