Part 1: The journey towards standardised impact measurement

It’s been seen as the holy grail for years, but could comparable impact measurement be in sight?

Katie Panella decided to join the Impact Weighted Accounts Initiative – a project to develop a standardized, monetized approach to measure companies’ positive and negative impacts – after becoming disillusioned with her career in impact investment. 

“It felt like impact-washing had got to a point that it was starting to not mean anything. So I wanted to get to the heart of how we actually measure it,” says the Research Associate at Harvard Business School. 

Senior money managers tell RI that, while the concept of investing for positive social or/and environmental impact alongside financial return is compelling, it’s hard to credibly advance without a general understanding of ‘impact alpha’ or how your ‘impact performance’ compares with others. And, as the impact investment market grows (it hit $502bn at the end of April 2019, according to the Global Impact Investing Network) so does that scrutiny.

Most fund managers measure and account for the impact they claim to deliver, but a litany of approaches means comparing impact performance between funds or companies is near impossible. 

The IWAI is just one initiative underway to help tackle this. In 2019, the IFC – the private sector arm of the World Bank – developed the Operating Principles for Impact Management and is working on converging signatories to the principles, which include heavyweights like BlackRock and UBS, on a common approach to impact measurement. 

Just last week, the IFC partnered with the Global Impact Investing Network to launch the Joint Impact Indicators, which the pair described as “a set of high-level indicators that impact investors can use to measure and report on their investment activities”. Already, those indicators are backed by a slew of investors including Axa Investment Managers UK, Calvert Impact Capital, Christian Super, Franklin Templeton, Mirova, Nuveen, Leapfrog Investments and BlueOrchard, who have put out a joint statement asking other investors to adopt the JII too. 

The UN’s Development Programme is working on “defining impact measurement and ensuring that claims of Sustainable Development Goal (SDG) contribution can be validated” and is collaborating with IMP+ACT Alliance to develop SDG Impact Standards. The Global Impact Investing Network is currently consulting on a standardised approach for investors to measure impact, too. Last year, impact investment consultant Tideline launched an arm called BlueMark, which it described as one of the first “impact verification businesses” to audit investors’ impact claims. 

One of the most influential initiatives in recent years has been the Impact Management Project (IMP), a “forum for building global consensus on how to measure, manage and report impacts on sustainability”. IMP, in its early phase, built consensus around five “norms” that it said would enable consistent assessment of performance. 

  • What? What outcome is occurring, whether performance is positive or negative relative to social or ecological thresholds and the relative importance of the outcome is to stakeholders.
  • Who? Which stakeholders are experiencing the outcome and how underserved they are by reference to the relevant social or ecological threshold.
  • How Much? How many stakeholders experience the outcome, what degree of change they experience, and how long they experience the outcome for. 
  • Contribution? The contribution of an enterprise and/or investor to the outcome relative to what would likely have occurred otherwise.
  • Risk – The likelihood that performance will be different than expected.

Daniela Barone Soares, CEO of impact investment fund Snowball, says IMP is becoming the norm in the impact industry and “making it easier to compare and identify” impact investments. Snowball, a fund of fund impact manager, uses IMP’s framework to develop its impact measurement approach

Paul Allard, Chief Ecosystem Officer at impak, an impact rating agency, says IMP has become a sort of de facto International Financial Reporting Standard (IFRS) for impact, because it pulls together all the key ESG disclosure standards: the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Global Reporting Initiative, the Climate Disclosures Standards Board (CDSB), B Corp, UN Environment’s Finance Initiative, the Principles for Responsible Investment, the IFC’s principles and CDP.

Allard hopes consensus on impact reporting will accelerate the growth of the “impact economy”, in which all investment, lending and buying decisions give consideration to “impact statements” for the relevant organisations, alongside the traditional financial information. 

IMP’s work on reporting and measurement represents a “necessary building block” in the realisation of this vision, explains Sarah Gordon, CEO of the UK’s Impact Investing Institute. “Businesses and investors need to do the ESG work first before they do their impact work. You have to have a good sense of your corporate ESG performance, and robust data, to then think about your positive and negative impacts.”

But ESG can be just as slippery for investors and corporates, with a lack of transparency around independent ESG ratings and a wide divergence on entity scores between providers. There are challenges around both the algorithms used to assess performance and the quality of disclosure itself. Corporates face a litany of ESG standards disclosure requirements leading to overlap and low-quality data in many cases. 

Hans Hoogervorst, the Chair of the International Accounting Standards Board, warned in 2018 of “disclosure overload”, suggesting mergers could create “a less chaotic world” for companies and investors. 

And consolidation is starting to happen. IIRC and SASB announced their intention last year to merge, creating the Value Reporting Foundation, with CDSB signalling interest to enter into similar discussions. Earlier this month, the trustees of the IFRS Foundation said they would push for the potential creation of an international sustainability reporting standards board (just last week, John Coates, the Acting Director of corporate finance at US regulator the Securities and Exchange Commission, described that work as “promising”). 

Both the IFRS Foundation and the International Organisation of Securities Commissions (IOSCO) have committed to build on existing initiatives including the work of the Value Reporting Foundation. In the meantime, GRI and B Lab are teaming up to help companies align their approaches. 


As the IIRC’s Integrated Reporting Framework explains, ‘impact’ can positively or negatively affect a company’s business model over time, and therefore create or erode enterprise value and financial returns. Compensating for environmental damages, for example, can be expensive; while positive impact claims can generate brand loyalty. 

As sustainability-related regulation and consumer demand for responsible companies grow, so too do concerns that these impacts – and their effects on enterprise value – aren’t adequately reported to investors. 

Double materiality is the idea that ESG disclosure should not only provide investors with information on the financial implications of sustainability – it should also provide other stakeholders with information on how an entity contributes to sustainable development. This double materiality has become a focal point for the upcoming overhaul of the EU’s Non-Financial Reporting Directive, which lays out ESG reporting expectations for Europe’s large companies. 

Much of the progress on disclosure has focused on establishing the right metrics, but the Impact Weighted Accounts Initiative has gone a step further by calculating the socio-economic value of company performance, in monetary terms, using those metrics. It’s research that seeks to shift to an accounting model that presents the total value that companies create or erode for all of their stakeholders. 

Sir Ronald Cohen, Chair of the Global Steering Group on Impact Investing, predicts a future where every company reports on risk, return and impact. He says: “I have been making comparisons between 1929 and 2019. After the crash of 1929, regulators introduced GAAP (generally accepted accounting principles) and the use of auditors to bring transparency to profit. Today, we need to bring that transparency to impact.”