August 2012 Update—In June 2010 Capital Institute posted the profile below of the Global Impact Investing Network (GIIN), a not-for-profit focused on promoting a more transparent and efficient global impact investing market. The Global Impact Investors Network (GIIN) has since made significant strides through a variety of initiatives toward its goal of supporting the growth of the market sector.
In September 2011 the GIIN released version 2.0 of the Impact Reporting and Investment Standards (IRIS), and subsequently released IRIS 2.2 in November of 2011. The newest version of IRIS includes factors that did not contribute to ratings in previous versions; for example, it includes a section on workplace education. The current version of IRIS is also an integral part of the Global Impact Investment Ratings System (GIIRS). GIIRS aims to assess companies and funds based on their social and environmental practices and impacts, without reference to financial performance.
IRIS is evaluated annually by a group of experts in order to determine if the system is overlooking key factors, or if the current version is focusing on factors that have become irrelevant. Although issues of transparency and standardization continue to challenge the impact investing market, efforts like IRIS and GIIRS are steps towards matching investors of all sizes with impact opportunities.
In our first GIIN profile, we noted that its first working group, Project Terragua, was exploring ways to increase impact investment in sustainable agriculture in sub-Saharan Africa. A recent project of the Terragua Working Group has been the formation of Mtanga Farms by GIIN Investor Council members The Tony Elumelu Foundation and the Calvert Foundation in partnership with Heirs Holdings and Lion’s Head Global Partners. An investment in small potato farms in Tanzania, Mtanga Farms’ goal is to improve crop yields thereby raising the income of local farmers and stimulating local economic activity. Similar farming efforts by organizations in Kenya tripled crop yields.
June 2010—Created in the Fall of 2009 under the fiscal sponsorship of Rockefeller Philanthropy Advisors, the not-for-profit Global Impact Investing Network is emerging as one of the central hubs and primary catalysts for the orderly growth of a transparent and efficient global impact investing market.
The GIIN’s mandate is highly focused: to elevate the profile of impact investing and to support the development of a market infrastructure that will drive significant new capital flows into the most effective impact projects. It now serves as an enabling umbrella organization for a number of promising collaborative activities: providing a “space” for the sharing of best practices among leading impact investors; helping to incubate the development of a set of definitions and metrics for tracking social and environmental impacts; and setting in motion the construction of an impact investment fund database.
The GIIN Investors’ Council is a group of institutions, including large-scale family offices, private foundations, and institutional investors, that meet to share their experiences in the sector, and to refine and promote industry best practices. Members include The Rockefeller Foundation, The Bill and Melinda Gates Foundation, Deutsche Bank, JP Morgan, TIAA-CREF, The Annie E. Casey Foundation, and Triodos Bank.
Its first working group, Project Terragua, is exploring ways to increase investment in sustainable agriculture in sub-Saharan Africa that will benefit the poorest populations of the region. Terragua members are sharing business models and discussing possible joint investments.
The GIIN’s Impact Reporting and Investment Standards (IRIS) project is a partnership among The Rockefeller Foundation, Acumen Fund and B Lab to develop a standard vocabulary and system of measuring impact investing projects. The goal of IRIS is to give investors a framework and set of tools to track and evaluate the social and environmental outcomes of specific impact investing projects and vehicles. IRIS aims to create a consensus for defining a set of operating indicators for six impact investing sectors: agriculture and artisanal; energy, environment and water; education; community development finance; microfinance; and healthcare. IRIS might, for example, allow an investor to determine how many jobs have been created, how many gallons of clean water produced, how much carbon abated, or how much affordable housing built for a given income level by a given impact project or enterprise. “Getting everyone to agree to and utilize a base set of metrics will be a huge accomplishment,” says GIIN’s Director Amit Bouri. But, he reports, the adoption of IRIS won’t preclude funds or investors from choosing other ways to articulate their impact, either qualitatively or quantitatively. IRIS is currently in a pilot phase with 6 investment funds. “We are working on a 2.0 version of IRIS for release later this year,” says Bouri.
GIIN is also working with RSF Social Finance and Imprint Capital to develop a database of impact investment funds. “The focus there is to help create transparency in the market,” says Bouri. “At the moment, if you are interested in affordable housing opportunities in rural communities it is hard to find them. Our database will not provide an evaluation of such projects but it will provide a starting point to allow an investor to identify the right people to talk to. This kind of information is completely absent in the space now. If you are searching for a large cap mutual fund for your 401k you will have no problem finding one; but for impact investing it is much more difficult. It is hard to see the depth of the product inventory even when it exists.”
“Our goal is to create enough clarity for the right capital to find the right recipient.”
Bouri does not shrink from acknowledging the significant challenges facing the impact investing market. Among them, he notes, is the task of matching a diverse group of investors with opportunities aligned with their often equally diverse impact investing goals. “We operate under a broad tent,” says Bouri, which includes everyone from high net worth individuals with a few million dollars to invest to multibillion-dollar pension funds and financial institutions with hundreds of millions of dollars to place in impact investing portfolios. Investor are also often likely to have specific sectoral, geographic, and asset class preferences which the current market may or may not be able to satisfy. Managing these expectations is an art in itself. “The truth,” says Bouri, “is that there are real capacity constraints in this markets.” This means that investors will be required to exercise some combination of flexibility and patience, as they seek to identify suitable projects and secure optimum risk/return profiles.
Bouri says that GIIN’s preliminary research indicates that there are large pockets of unlocked capital waiting to be tapped in each subsector of the impact market and it should not be overlooked that these sources of capital will provide indirect support for projects that, as yet, have no market-based solutions. Furthermore, he reports, while venture funds and foundation endowments may need to achieve market rates of return there are many family offices and high net worth individuals that are willing to take a financial haircut to achieve deeper impact. “Our goal is to create enough clarity for the right capital to find the right recipient,” he maintains.
—Susan Arterian Chang is Director of Capital Institute’s Field Guide to Investing in a Regenerative Economy Project.