By Marta Maretich
The impact investing sector is developing at an amazing rate and so are the needs of impact funds, investors, advisors and companies. As we move rapidly beyond the early development stages, services are starting to emerge as an important theme for 2014.
A recent article charted one aspect of the emerging trend. BCorp plan to use their data aggregation systems as a basis for providing a variety of services to the sector. The introduction of BAnalytics, a merger between the investment management tool Pulse and BCorp’s GIIRS, will allow the group to offer a range of data-based services including rating, evaluation and analysis.
BCorp is following in the footsteps of traditional financial services industry where advances in technology have delivered the ability to manage mind-blowing amounts of live data; and turn profits from them. As traditional financial service providers have discovered to their joy, data, crunched at this speed and at this scale, has the power to transform business performance; and data aggregation and analysis is itself big business for firms who make wrangling data their focus.
BCorp’s move toward offering data-based services is a welcome sign of a maturing impact marketplace and it indicates the shape of things to come. Fund and company ratings are needed to establish standards in the sector; benchmarking holds out the hope of creating comparisons, while more transparency can do no harm. We’d be remiss not to develop these systems.
Yet for now the most important application of data may be that it proves convincing to investors. Mainstream investors, who include large institutional investors and foundations, could unlock huge amounts of capital provided they can be persuaded to trust in the impact approach. Data is reassuring both to them and to the financial professionals who advise them, according to research by the WEF.
However, although important, data-based services won’t offer everything the impact sector needs to grow today. The nature and ecosystem of impact investing makes it different from traditional investing in fundamental ways; and this will drive the need for a whole range of specialist services not necessarily dependent on data.
Beyond data-based services
Take metrics for example.
Impact businesses and funds must build social and environmental impact metrics into their plans along with all the usual financial ones, correct? Straight financial metrics are no mystery to most businesspeople and financiers; years of trial and error have taught us how to “do” them. The same can’t be said for social and environmental impact metrics, which have been around for a relatively short time.
The recent emergence of IRIS as the leading measurement system, developed by GIIN and now administered, along with GIIRS and PULSE, though BCorp, means that the sector now has access to tools for measurement. (Whether it’s a good idea to make a single metrics approach so dominant at this early stage is a question we won’t tackle here.)
However, the mere existence of IRIS doesn’t mean impact measurement is now taken care of; and here is where the need for services comes in: How do impact enterprises and funds use IRIS? How do they know which measures to choose from the long list? How do they embed impact metrics into their business plans and their operations? How do they translate these processes across geographies and cultures?
The answer is that many will need expert help to set up impact data collection, reporting and analysis. There is a role for impact metrics specialists who can help establish processes and create systems that deliver accurate impact information while supporting business objectives.
Call in the specialists
This is only a small example of the kind of specialist service impact sector businesses and funds will need as the sector takes off, “specialist” being the operative word here.
Impact investing is a new sector; and it’s a complex one due to the range of actors and agencies involved. Hybrid financial arrangements are common and collaborative partnerships, blending public, private, philanthropic and government capital, are increasingly seen. Impact businesses often pass through a number of agencies, including philanthropic intermediaries, on their way to market viability and there is a growing spectrum of kinds, flavors, types and sizes of impact businesses.
Fund managers, investors and financial advisors; even very clever ones; will need help navigating this expanding field of opportunity. Impact business people will need access to expertise as they grow their businesses in a multi-stakeholder context and roll them out across the globe.
In both cases, having access to specialists; that is, experts who understand the unique requirements of impact investing; will be a decisive factor in success. Media, finance, legal, governance, research, scientific, managerial and HR expertise, with a spin on impact, will all be in demand, as will specialists capable of working in cross-sector partnerships and internationally.
Finding the expertise we need
Where will these experts come from? Some will come from the sector itself. Graduate programs are already incorporating social investing into their curriculi and a generation of “multilingual” professionals is beginning to emerge. These new impact investing leaders will understand the language of finance as well as they do that of social and environmental benefit. Their contribution will undoubtedly fill some of the sector’s need for services, but not all.
In the immediate future, the impact investing sector will need to reach out to the wider finance and business community to find the services it needs to grow. There will be a role for agencies who can help impact investing financiers and businesses source expertise from a pool of impact-able specialists in a range of fields. As the sector continues to become more accepted by the mainstream, and the needs of impact finance and business become better understood, this pool should become larger and better adapted to meet the needs of impact. The challenge lies in finding a way to give the sector easy access to the expertise it needs now.
So, data, though essential, will not provide us with all the answers. Instituting systems for capturing and analyzing data (both financial and social) is a step in the right direction but there is a risk that the focus on data and data-driven services may distract us from the real task at hand: building impact businesses and funds that deliver tangible social and environmental benefit along with financial profit. To do this will take huge amounts of human ingenuity, innovation, “hard” as well as “soft” expertise; and, yes, data too.
[Image credit: 123RF ]