Impact investment was once the preserve of mission-led investors. Today, growing numbers of asset owners and managers are looking more closely at this investment approach. Robust reporting on impact can pique interest and help bring impact into the mainstream investment universe. But delivery is patchy. A recent webinar hosted by Snowball and The Good Economy analysed what good looks like and the potential pitfalls of poor practice.

Impact investing has never had it so good. Capital is pouring in, new funds are launching, engagement is growing – and impact reports are attracting much more attention. They are also beginning to change. Viewed in the past as thinly disguised marketing documents, today, reports are both taken more seriously and scrutinised more keenly. Some survive such scrutiny; others fare less well. But this is rarely deliberate. Mostly, it stems from a failure to understand how best to compile a report so that stakeholders genuinely understand the impact managers seek to create and, crucially, whether they are succeeding.

Start from the beginning

As our panellists made clear, no one can report convincingly on their impact unless they know what they are trying to achieve. In other words, before asset owners or managers even start to consider an impact report, they need a well-thought-through impact measurement and management system - a toolkit that clarifies the impact they are trying to deliver and integrates that ambition into their investment process.

Crucially too, impact investors need to keep their ultimate goal front of mind: are they making a real difference to real people, to real places, to the planet? Here, stakeholder evidence is critical. So impact reports need a blend of quantitative and qualitative data. Yes, metrics matter, but so do the voices of the people whose lives investors are trying to change for the better. One panellist described impact reports as: “A golden threat between asset owners, asset managers, underlying investees and beneficiaries, providing accountability on what impact actually is.”

Five key elements

Leading impact consultancy, BlueMark, conducted a wide-ranging review into impact reporting to assess where the industry is today, and the future improvements stakeholders would like to see. The results, echoed by all our panellists, provide a clear framework for best practice:

1. Define your objectives, so your impact expectations are clear to internal and external stakeholders.

2. Clarify which metrics are most relevant to your fund so you can measure progress.

3. Share your performance, so it is clear how you measure up against targets, past performance and peers.

4. Ensure you include the perspective of not just the fund manager but the people experiencing the impact so external audiences can gauge whether your impact is meaningful.

5. Be transparent about lessons learnt and risks encountered. Don’t be afraid to admit if mistakes arise or you need to change course.

For good and for bad

Admitting to mistakes is never easy, especially for managers trying to develop their credentials in the impact field. But, as our panel discussed, committed impact investors and asset owners are all trying to achieve similar goals, focused on generating genuine impact in the areas where it is most needed. Transparency is critical in this respect, helping practitioners collectively to become better at managing for impact, and measuring impact reporting on their performance.

Setting standards

Even as interest in impact reporting grows, there are few if any, common standards and metrics. An increasing number of industry practitioners and policymakers believe that this should change. Impact Frontiers, which advocates for greater integration of impact into investment practices, is trying to build consensus on the elements that constitute robust and reliable impact reporting. Common standards play a central role here, allowing asset owners to compare impact performance across managers and make allocation decisions accordingly. Common standards also drive accountability, which in turn should help to foster faith in the industry and refute allegations of impact-washing.

Some actors believe that independent verification of impact reports is the logical next stage – and major auditors are already looking at how they might cater to this need. While their involvement may help in time, our panellists suggested that certain steps need to be taken first to avoid merely adding cost without adding value.

Accountability matters

With new funds in development and new capital coming into the sector, there should be a real emphasis on governance - ensuring that boards and investment committees genuinely care about the impact they are creating and that there is an alignment between impact objectives, investment strategies and financial goals. And our panellists referred again to a need for clearly defined standards to encourage alignment across the impact reporting space.

Measures from the Financial Conduct Authority to safeguard accurate labelling of funds in the ESG and impact space should drive accountability in time as well. Nearer term, however, self-help can deliver real progress. As our panellists suggested, fund managers best serve the impact industry by making their reports public and ensuring they are clearly written, comprehensive and authentic. This not only helps asset owners and other stakeholders but the managers themselves, highlighting strengths and weaknesses in their impact management processes, practices and objectives.

Impact reporting has already come a long way, but there are clear opportunities for improvement. Ultimately, however, our panellists were in agreement: good impact reports tell the story of those who are being impacted, and they tell it in such a way that asset owners can make the right decisions and help to drive positive change in the areas where it is most needed.

Our webinar was chaired by Sarah Gordon, senior adviser to the UK Impact Investing Institute.

Our four panellists were:

• Paige Nicol, Director BlueMark,

• Mike McCreless, Executive Director, Impact Frontiers,

• Simon Chisholm, Chief Investment Officer, Resonance Limited

• Sarah Forster, CEO The Good Economy

On March 29th at 2pm, we're hosting our third and final instalment of the Tackling impact-washing with accountability and transparency webinar series.

If you have any thoughts on the article or would like to learn more about Snowball, please do be in touch at hello@snowball.im