Rating the Right Investment

Good GradeImpact investing loosely refers to the practice of choosing investments that earn a positive financial return while creating a positive social or environmental impact. One common critique of this approach is that there is lack of tools to compare investments across a broad spectrum of diverse initiatives, from affordable housing to safe vaccines.

This September at the Clinton Global Initiative annual meeting, B Lab announced the launch of GIIRS (Global Impact Investing Rating System) Ratings and Analytics, with the support of institutions such as the Rockefeller Foundation and Skoll Foundation. B Lab, a nonprofit dedicated to using business to solve societal problems, also announced the commitment of 15 GIIRS Pioneer Investors, who are “putting their money where their mouths are” and preferentially choosing GIIRS-rated funds and companies as part of their investment portfolios.

Since the B Lab announcement, the 15 Pioneer Investors have contributed more than $550 million.

The short-term goal for GIIRS is to provide ratings for 2,500 companies and 350 funds within five years.

The GIIRS ratings provide investors objective metrics to compare different companies against each other. Its analytics tools give them an opportunity to analyze the impact of funds and companies across different development sectors and geographies.

The B Impact Ratings System that lies at the heart of GIIRS is comprised of about 160 questions from six different impact areas—governance, workers, community, environment, community products and environmental products. It is framed in a way that is easy for an entrepreneur to fill out, yet captures the essence of the impact the business has on the six measured dimensions.

Profitability and Social ImpactYet how does one go about comparing the performance of a company that delivers safe drinking water to the children in the slums of Rio de Janeiro to another that provides safe vaccines to the children in the deserts of Rajasthan?

The key element here is the Impact Reporting and Investment Standards (IRIS), with which GIIRS has integrated. Similar to financial accounting standards, IRIS provides a basis for performance reporting. IRIS is an initiative of the Global Impact Investing Network (GIIN), which has been developing metrics, sector by sector, to objectively analyze the impact that corporations make in communities and the lives of people in those communities.

Critics of this approach might raise questions about the validity of quantifying things that are inherently hard to quantify. While there might be some basis to the critique, it is vital to allow alternate measures like this to get visibility among asset managers. What we measure will improve and be refined, so the more we measure, the better the measurement gets.

The arrival of GIIRS has broken new ground by giving an objective measure for impact-investing performance, which will allow capital to flow from traditional asset classes to impact investing by retaining the ability to rate and rank funds and companies.

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