One of the more important recent developments in the impact investing industry is the publication of the Impact Performance Reporting Norms by Impact Frontiers (a learning and market-building collaboration for impact investors), and informed by input from more than 350 stakeholders. The Norms provide the market with clear guidelines about what information belongs in an impact report and how that information should be presented. (See graphic for a high-level overview.) This guidance has filled a critical market gap and is key to ensuring impact reports can be used more effectively by investors to gauge a fund’s impact performance and make decisions accordingly.
The Reporting Norms – while informed by market stakeholders – outline expectations for impact reporting that will be a reach for many impact investors today. Recognizing that the market will need time to be able to report in alignment with the Norms, Impact Frontiers has already announced a series of work streams over the next two years to support report preparers, users, and independent reviewers in adopting the Reporting Norms.
Fortunately, evidence shows that there are impact investors that are well-positioned to report in line with the Norms. Drawing on the data and insights from BlueMark’s latest Making the Mark report, which is based on 111 verifications for investors managing a combined $234 billion in impact AUM (nearly 20% of the total $1.2 trillion impact investing market, as measured by the Global Impact Investing Network in 2022), we offer some reasons to believe that there is a line of sight to more widely available, quality impact reporting.
Where are investors well positioned to report in line with the Norms?
Theory of Change
A majority of verified investors (61%) have an impact strategy backed up by a robust theory of change that connects their investment activities to targeted social and environmental outcomes. This practice corresponds to the first content theme in the Reporting Norms, which calls for report preparers to explain the fund’s impact thesis, which “may take any form of Impact Pathway, including but not limited to a theory of change, logic model, outcomes chain, or system map.”
Impact Monitoring
A growing number of investors have adopted best practices for impact monitoring. For example, 49% of verified investors regularly collect impact data from portfolio companies across multiple dimensions of impact, and 58% of investors are systematically comparing that data against targets and prior years’ results. This corresponds well with guidance in the Norms around how to best communicate impact performance, with an emphasis on reporting results relative to targets and across impact dimensions.
And where can investors improve?
Soliciting Feedback from Stakeholders
One area where investors have to get better is soliciting feedback from end-stakeholders. According to BlueMark’s data, just 35% of verified investors solicit input from stakeholders through a variety of methods (e.g., through end-customer surveys, community forums, or specialized evaluations). While this represents a significant increase from 11% of investors in 2021, it’s still being treated by many investors as a niche practice that is more of a nice-to-have than a must-have.
However, this type of stakeholder engagement is very useful for producing case studies, which are a key part of the Reporting Norms due to their potential to tell a more holistic story about impact performance. The Norms specify that case studies should be selected and written to provide useful information without manipulating selection or content to influence users’ perceptions positively or negatively.
Critical Self Reflection
Understandably, impact investors want to be viewed in a positive light. Impact reports often paint an attractive picture of the results being achieved, as it can be difficult to report on challenges or expectations unmet. However, impact investors must embrace critical self-reflection, as this can reveal truly valuable insights for improvement.
For instance, a customer survey might reveal that a new device for filtering water, although technically more efficient than anything on the market, is difficult to use for the intended population. The lack of adoption could lead to decreased sales and poorer health outcomes, a double setback for an investor prioritizing both impact and financial performance. Rather than shy away from reporting this failure, investors should view it as a learning opportunity to help illustrate the limitations of technological innovation and the importance of market fit.
Although the Reporting Norms are still early in their adoption lifecycle, the data on investors’ impact management practices clearly show that a growing community of impact investors have the foundations in place to report in accordance with the expectations laid out in the Norms. We have a strong conviction that impact reporting represents one of the key pillars of accountability for an impact investor, alongside having a robust impact strategy, a well-designed impact management system, and strong impact governance – and we look forward to ensuring investors and other stakeholders that they are living up to their impact pledges.