Ceri Austin 
Investors seeking risk-adjusted returns with positive real world impacts have witnessed an upswing in impact investment products and options in recent years.
When choosing metrics for measuring impact, it is crucial that all stakeholders be involved. Furthermore, using software tools that simplify data collection and analysis can greatly increase accuracy and efficiency.
Social impact
No matter your goals – from helping the environment or supporting women entrepreneurs – impact investing can provide many avenues for positive change. Since resources may be limited, it is wise to prioritize issues that matter to you first before searching out companies doing something about them.
An additional potential stumbling block can be a lack of analytical rigor when measuring impact. For instance, microloan programs might measure their results through tracking number of borrowers, repayment rates and business growth but don’t reflect what a community would look like without this investment.
This guide explores a new type of financing called quasi-equity, which combines elements of debt with equity characteristics and gives impact investors certain governance rights. By using this framework, investors can measure performance while showing its impact. This approach is ideal for those familiar with both philanthropy and grantmaking approaches.
Environmental impact
Impact investing seeks not only to generate profit but also improve society and the environment. Investors might invest in companies offering sustainable energy solutions or healthcare services in remote regions; or support nonprofits focusing on environmental, social, and governance (ESG) issues.
Impact investments offer a powerful solution to the multi-trillion dollar global capital shortfall that hinders progress on critical issues like poverty, climate change and inequality. They can also serve as an invaluable asset in terms of professionalizing impact investing itself as an area of philanthropy.
Returns on impact investments typically compare favorably with market financial returns and may even surpass them in certain instances. Furthermore, many impact investors report meeting or exceeding both social and financial performance expectations in their portfolios, an encouraging sign that these types of investments may soon become mainstream options. Furthermore, a younger generation of investors are seeking out such options.
Financial impact
Impact investing seeks to generate both financial returns and social and environmental benefits; however, measuring them may prove challenging. There is now widespread recognition of the fact that measurement and management are as essential to impact investing as the initial investment itself, prompting new assessment tools and standards being developed in response.
Identification of desired outcomes of impact investments requires a comprehensive knowledge of both the market and problem being addressed, and of potential impacts using existing research or data, with techniques like randomized controlled trials (RCTs).
RCTs compare groups who receive an impact investment with those in a control group to assess its efficacy, but this method can be expensive and require extensive data collection and reporting; furthermore it may not apply to all investment types, for instance a thematic fund dedicated to increasing access to education may require qualitative approaches which make evaluation more challenging.
Community impact
As investors strive to align their investments with their values, interest in impact investing has surged. Major investment firms like BlackRock and Goldman Sachs are adopting impact investing practices into their offerings; SRI mutual funds and ETFs have proliferated rapidly as investors look for investments that both generate financial returns while supporting efforts to address social problems.
While calculating financial returns can be easy, assessing social and environmental benefits is more complex. This is especially true of impact investments which seek to address specific social problems like decreasing incarceration rates or improving crop yields.
Investors should first establish their impact goals. This process will help them narrow down opportunities and select strategies that align best with their objectives. They should also take into account any risks that their expected impact might not materialize as planned and then use economic research to put a value on projected social change while estimating its probability.
