Decoding impact expectations: best practices for impact investors and companies

The impact investment universe continues to rapidly evolve, surpassing the US$1 trillion mark in 2022 to address some of the world’s most pressing challenges.¹ But amid the industry’s significant growth, it grapples with a multitude of complexities. 

These challenges include one of the four core characteristics of impact investing: the need to ensure accurate measurement and interpretation of impact data.² The absence of standardisation, coupled with a lack of consistent and comparable data, poses the question: How do we continuously deliver credible impact measurement and management that supports real-world positive outcomes?

In this paper, we offer insights gleaned from our engagement with public and private impact companies, our collaboration with key stakeholders in the impact investing industry, and our latest research into impact reporting best practices. We believe that mutual understanding and honest communication are critical to the industry’s progress. 

For investors, this means being aware of the capabilities and resources of portfolio companies to set realistic expectations. For portfolio companies, it means understanding investors' expectations to better meet them. In our effort to advance impact measurement and management (IMM), we share three recommendations each for impact investors and companies.

Three best practices for impact investors

1. Clearly communicate the impact data you plan to measure and why it matters for business outcomes.

For portfolio companies, the request for impact metrics can sometimes be burdensome or seem detached from company priorities. Industry research shows that today’s IMM conversations are dominated by the information that investors need.³ Companies can become hamstrung by the questions asked by multiple investors, rendering them unable to focus on the issues they feel are most relevant to their businesses. As an investor, it’s crucial to be mindful of the impact data you request and to explain why certain metrics are important and how they can enhance the portfolio company’s business value. Making sure the request for impact data is reasonable (given the resources available to the business) and relevant to its strategic goals is key to achieving alignment of interests between impact investors and portfolio companies.

Illustration: In recent engagements with publicly listed higher education providers, we underscored the importance of post-graduation outcomes, such as average starting salaries relative to peer institutions. This guidance was well received because we illustrated that the data 1) is a key component of our impact thesis, showing the long-term value that a university provides to students and 2) can serve as a powerful recruiting tool for the university, attracting potential students by demonstrating the value of investment in higher education.

2. Meet companies where they are on their impact measurement journeys.

Navigating the industry’s evolving impact measurement best practices can be challenging, especially for a young company with limited financial and human resources. It’s essential to reassure companies that they don’t need to have the perfect impact metrics right away. Instead, they should have space to evolve with your support along that journey. This partnership not only builds trust but can also accelerate a company's ability to best measure impact.

Illustration: Our private-market climate investors often consider investments in enablers — companies that facilitate positive climate outcomes but aren’t solely responsible for them. Measuring impact in these cases is often difficult and at times we are only able to reliably get data on activity-based metrics (such as number of customers). In one case, however, we were able to work with a portfolio company to conduct a customer survey containing specific questions related to environmental impact. A better understanding of how customers use the product can potentially give us more evidence linking customer numbers to environmental benefit. It can also yield insights for the business to aid with customer engagement and product development. This example demonstrates the trusted partnership we develop with portfolio companies, our willingness to progress at a pace comfortable for each company, and the potential dual benefits of impact-focused research.

3. Emphasise that the IMM journey is nonlinear. Just because a company doesn’t experience steady impact progress doesn’t mean you don’t believe in its potential.

Companies aiming for environmental or social impact often grapple with the pressure to consistently deliver positive impact results, fearing that any shortfall may disappoint investors. Investors who proactively acknowledge the volatility of impact can foster an environment of transparency and collaboration. This reassures portfolio companies that we are partners in this journey, understanding and accepting the ebbs and flows inherent in the pursuit of impactful solutions.

Illustration: We believe that maintaining regular dialogue with companies that report declining impact over time is crucial, emphasising that a temporary shortfall doesn’t necessarily diminish our confidence in a company’s impact. Whether or not it can remain in an impact portfolio in this case depends on the reason behind the decline. Following disappointing impact results, we use engagement to assess if there has been any change in the underlying business model that may run contrary to our impact thesis. This approach creates a climate of trust, enabling the company to more readily share important information with us so we can engage early and support the business if needed.

¹Source: Global Impact Investing Network, “2022 Sizing the Impact Investing Market,” report. October 2022. | ²Source: Global Impact Investing Network, “Core Characteristics of Impact Investing,” 2023. | ³Source: Impact Alpha, “Putting ventures at the helm of impact measurement and management,” 20 April 2022. | ⁴Source: Global Impact Investing Network, “State of the Market,” October 2024 | ⁵Source: Impact Frontiers, “Five Dimensions of Impact,” 2023.