After years of framework development, metric definition, and data collection, many investors are increasingly able to anticipate, measure, and manage the social and environmental results of their investments. Many of these practices are now codified in frameworks such as the Operating Principles for Impact Management. But for investors to play an even greater role in solving social problems, impact management must leave its silo and integrate with financial management.
The challenge is that financial and impact management methodologies are not designed to be interoperable. Impact specialists at investment funds typically have their own teams with their own vernacular, frameworks, and datasets, all of which exist in varying degrees of isolation from their financial counterparts. These siloed approaches leave impact, money, or both on the table.
Integrating impact with financial management enables investors to consider the financial, social, and environmental dimensions of their investments in a comprehensive way; to optimize investment performance across those dimensions; and to communicate all dimensions of their investments’ performance clearly and transparently.
The benefit of greater impact-financial integration for the world at large transcends the benefits for individual investors. Asset managers and owners—including those who seek market rates of financial return and those who are comfortable with less—can use integrated impact and financial data to allocate capital to address urgent social and environmental challenges while achieving their financial goals.
Towards this end, our organizations have participated for the past two years in the Impact Frontiers Collaboration, an initiative of the Impact Management Project. The collaborative project, inspired in part by the article “Toward the Efficient Impact Frontier,” pioneered new ways to integrate impact management with financial management across participants’ portfolios cumulatively totaling more than $15 billion. The effort joins GIIN’s Roadmap for the Future of Impact Investing and the Operating Principles for Impact Management in highlighting the importance of integrating impact with financial risk and return.