In search of impact authenticity

FaithInvest friend Rob Brown recently shared with us a new venture he co-founded called the Impact Evaluation Lab (IEL). Based on the research he developed in conjunction with the Sorenson Impact Institute at the David Eccles School of Business at the University of Utah, this innovative and market leading impact assessment framework offers impact investors a 'new tool for assessing methods, rigor, and performance in impact investing'.

We've heard from many faith-based investors that it can be challenging to determine which investments truly reflect alignment with their beliefs, teachings, and values, and we believe that an accurate understanding of the investments themselves is crucial to this end, perhaps in the realm of impact most of all.

We believe the framework developed by IEL does this well. As described in the attached white paper, the Impact Evaluation Lab uses 'a comprehensive framework' - the Impact Authenticity Score (IAS) - to address an impact investment management team’s ability to clearly define an authentic strategy aimed at tackling a social or environmental challenge, diligently allocate resources to pursue this impact mission, and successfully achieve the anticipated returns promised to investors. It proposes to advance the application of existing frameworks by evaluating three crucial aspects of a fund’s performance:

Mission Authenticity, a firm’s commitment to impact objectives;
Impact Execution, the rigor of impact measurement practices;
Financial Performance, alignment with financial objectives.

The methodology also considers factors such as investment strategy, team expertise, and legal entity structure to ensure a comprehensive evaluation.

The IAS introduces a consistent and rigorous ratings methodology to evaluate specific investment products, assessing their authenticity and potential to achieve desired impact outcomes and financial returns. In formulating this approach, IEL describes five core principles:

Diversity of Impact Goals: Recognizing that asset owners may have distinct impact objectives, IEL acknowledges that what is crucial to one investor may be secondary to another. Multiple solutions to a single problem can be equally valid and effective
Context-Driven Evaluation: There is no one-size-fits-all approach to analyzing impact investment strategies. However, there should be minimum standards of mission authenticity and rigor that the impact investing community collectively upholds.
Importance of Data and Metrics: Data, metrics, and consistent reporting at both the investment and portfolio levels are integral to evaluating a mature strategy. While narratives and anecdotal evidence can complement this, they cannot substitute for rigorous measurement. Process and implementation are equally vital.
Resource Flexibility: Standards for metrics and reporting should accommodate the constraints faced by earlier stage and smaller fund management teams with limited resources. Constrained resources can sometimes lead to focused and effective energy allocation.
Public Good: A ratings assessment should serve as a public good, reflecting best practices and meeting the expectations of the broad impact investment community and society more broadly.

In summary, IEL's assessment aims to determine if an impact investment management team has articulated an authentic strategy designed to address the targeted problem, applied resources to that mission rigorously, and delivered the returns stated as a goal to investors.

In simplest terms, the Impact Authenticity Score aims to answer: Did the fund management team fulfill their stated commitments?

We feel there are few more important questions for faith-based asset owners to ask - and to have answered - when seeking to align their investments with their faith values!

In addition to his work at IEL, Rob is a Senior Fellow at the Sorenson Impact Institute at the David Eccles School of Business at the University of Utah, and a Contributing Editor at ImpactAlpha.