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Hi, my name is Jaclyn Foroughi, and
I'm a lecturer in accounting at
the Stanford Graduate School of
Business.
I'd love to share some key
takeaways from the class I teach,
analysis and measurement of impact,
which is part of
the Action Learning Program.
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So what is impact investing?
It refers to investments made
according to three criteria.
Intentional social or
environmental benefit,
positive financial returns, and
an effort to measure impact.
ESG is a framework for
helping stakeholders understand how
an organization manages risks and
opportunities around sustainability
issues.
So ESG tends to be based on
backward-looking measures resulting
from the normal course of
business or
activity that has already occurred.
Impact investing on the other hand,
is forward looking.
It's a strategy used to define
the types of investment an investor
is targeting against goals it seeks
to achieve.
Because investors opt into impact
funds knowing the investment
manager's intentions before
investing, it is subject to far
less fiduciary scrutiny than ESG.
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Intentionality or
a deliberate desire to contribute
to measurable social or
environmental change is a core
characteristic of impact investing,
and it's what differentiates it
from other investing approaches.
Developing a thoughtful and
well-defined investment and impact
thesis goes a long way toward
communicating your intended impact.
The heart of Impact investing seeks
to address some of the biggest
issues affecting the planet and
humanity.
Impact market participants
understand the urgency
of addressing these issues, and
they're well beyond the point of
discussing the reasons for action.
They're about taking action whether
from a financial, political, or
business standpoint.
In addition,
the industry is critical of efforts
to sell the story for
impact washing purposes.
Because of this, authenticity is
a core value in the impact space.
Meaning that what you say and
what you do are in alignment.
Those who do not adhere to
these characteristics are likely to
get called out in a space that is
highly collaborative and
unapologetically bold.
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Over the last decade, efforts to
coalesce around a consistent set of
impact measurement and monitoring
frameworks has increased greatly.
However, the field continues to
evolve and
there is just no consensus
on the best way to measure impact.
Instead, different organizations
may take drastically different
approaches depending on the
position along the impact spectrum
or the asset being measured.
And qualitative results can be just
as important as quantitative
metrics.
For example, a multibillion dollar
climate fund may take a highly
quantitative evidence based
approach to measuring impacts.
And a smaller fund focused on
addressing the needs of
marginalized communities,
may prefer a low-cost and
highly insightful approach through
qualitative surveys of individuals
directly impacted by their
investments.
There's no one-size-fits-all,
or copy-and-paste approach to
measuring impact, instead it's as
much of an art as it is a science.
Impact measurement can be messy,
but measuring something
is better than nothing.
And it's important to regularly
analyze your impact
measurement process for patterns or
formulas that can lead to bias or
blind spots.
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One of the defining characteristics
of impact investing is a positive
financial return.
And importantly, this is what
distinguishes it from philanthropy.
Still, the impact spectrum varies
greatly with many pathways to
impact.
A below market rate investment,
for example,
may appear to sacrifice returns for
impact relative to a market rate or
above market rate investment.
But collinearity of returns and
impact is the goal
of all impact investors.
In other words, impact investing
need not be concessionary if the
focus is on maximizing both returns
and impact in an interconnected and
mutually reinforcing way.
This can be accomplished with
a rigorous approach to impact
investment analysis and
measurement.
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Unlike traditional investing,
impact due diligence goes beyond
the point of investment.
Impact investors continue to
monitor and measure key impact
metrics to the point of exit and
often beyond.
The goal is to responsibly exit
investments with impact aligned
buyers and to consider the effect
of the sale on the sustainability
of the impact achieved.
As my colleague Ilya Strebulaev
pointed out in his five takeaways,
due diligence is hard work.
Impact investing, which
includes the same due diligence as
traditional investing, adds on
a layer of impact measurement.
This makes it even harder work or
potentially even more rewarding.
[MUSIC]
How do I balance ultra running,
and teaching, and five kids?
I actually don't,
they actually all blend together.
And you will often find me wearing
flip-flops in the classroom after
a 100 mile race or you will find me
wearing my running gear during
a professional investment meeting.
It all just sort of blends together
and it's one big crazy mess.
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