The Sustainability Story: Measuring Success in Impact Investing with Dean Hand
Episode Release Date: October 7, 2024
Hosts: Nicole Gehrig, Deborah Kidd, Paul Moody
Guest: Dean Hand, Chief Research Officer at the Global Impact Investing Network (GIIN)
Introduction
In the latest episode of The Sustainability Story, hosted by Nicole Gehrig of the CFA Institute, the conversation centers around the intricacies of impact investing with Dean Hand, Chief Research Officer at the Global Impact Investing Network (GIIN). Dean brings her extensive expertise to discuss how impact investing has evolved, the methodologies for measuring success, and the role of regulatory frameworks in promoting sustainable financial practices.
Defining Impact Investing
Nicole opens the discussion by addressing the often-misunderstood term "impact investing." She references the collaborative efforts of the CFA Institute, PRI Principles of Responsible Investment, and the Global Sustainable Investment Alliance to standardize definitions in the responsible investment space.
Notable Quote:
"Impact investing is investing with the intention to generate positive, measurable social and/or environmental impact alongside a financial return." — Nicole Gehrig [01:33]
Dean emphasizes the importance of intentionality and the necessity of a theory of change to distinguish an investor's impact from that of the investee's.
Evolution of Impact Investing
Dean traces the roots of GIIN back to its inception 15 years ago, highlighting two major evolutions:
- Increase in Capital Volume: From identifying over 3,000 organizations engaged in impact investing to managing assets exceeding the trillion-dollar mark by 2022.
- Sophistication in Measurement: Transition from proprietary frameworks used by over 80% of investors to standardized external frameworks, enhancing clarity and comparability.
Notable Quote:
"We’ve seen harmonization across impact measurement frameworks and a greater level of clarity around which frameworks to use when." — Dean Hand [03:10]
Holistic Approach for Institutional Asset Owners
Dean discusses how large institutional asset owners—such as pension funds and sovereign wealth funds—can adopt a holistic impact lens to balance financial returns with social and environmental outcomes. She underscores the importance of integrating both financial and impact objectives through logical models or theories of change.
Notable Quote:
"Introducing both a financial lens as well as an impact lens allows asset owners to achieve both financial objectives and improve the quality of life for their beneficiaries." — Dean Hand [07:03]
Impact Investing Across Asset Classes
The conversation delves into how impact investing strategies vary across different asset classes, including private and public markets, equities, and debt.
- Private Markets: Direct relationships with investees facilitate measurement and management of impact.
- Public Markets: Require different approaches, such as engaging with issuers of green bonds or exercising shareholder voting rights to influence impact.
Notable Quote:
"In public asset classes, you may have to use other methods to understand how your investment is tracking to achieve the results you may have." — Dean Hand [13:09]
Measuring Theory of Change and Metrics
Dean breaks down the components of a robust theory of change, emphasizing both quantitative and qualitative metrics. She advocates for setting specific, measurable targets aligned with broader frameworks like the Sustainable Development Goals (SDGs), while also considering the context to ensure responsible outcomes.
Notable Quote:
"A theory of change is integrating both financial and impact objectives to ensure you achieve both outcomes." — Dean Hand [16:42]
She illustrates the necessity of responsible practices alongside quantitative targets to prevent unintended negative consequences, such as over-indebtedness when providing financial access.
Challenges with Impact Data
One of the significant hurdles in impact investing is the inconsistency and lack of comparability in impact metrics across different investments.
- Data Comparison: 91% of investors find it challenging to compare their impact performance with peers.
- Standardization Efforts: GIIN's development of standardized impact performance benchmarks in sectors like financial inclusion, agriculture, and energy to facilitate benchmarking and integrated reporting.
Notable Quote:
"Impact performance benchmarks allow investors to see where their investments sit relative to a peer group and relative to a particular context." — Dean Hand [23:09]
Regulatory Framework and Public Policy
Dean highlights the pivotal role of public policy and regulation in shaping the landscape of impact investing. She points to recent regulatory developments in Europe and other regions that promote transparency and consistency in disclosures and labeling.
Notable Quote:
"Regulations encourage investors to be more transparent with their practices and products, driving the market forward." — Dean Hand [27:24]
She acknowledges challenges like framework interoperability but remains optimistic about the industry's ability to align and evolve standards over time.
Conclusion
As the episode wraps up, Dean underscores the critical role of impact investing in addressing global challenges such as inequality and climate change. She encourages investors to view their investment strategies as pivotal tools for positive societal transformation, beyond merely achieving financial gains.
Notable Quote:
"Impact investing is a strategy for investors to do way more than just make money—it’s a way to address some of the world’s most pressing challenges." — Dean Hand [31:13]
Nicole echoes Dean's sentiments, reinforcing the importance of transparency, strategic measurement, and regulatory support in advancing sustainable investment practices.
Final Thoughts
This episode of The Sustainability Story offers a comprehensive exploration of impact investing, blending theoretical frameworks with practical insights. Dean Hand's expertise illuminates the path forward for investors seeking to balance financial returns with meaningful social and environmental impact, emphasizing the necessity of standardized metrics, robust theories of change, and supportive regulatory environments.
For those keen on integrating sustainability into their investment strategies, this conversation provides invaluable guidance on measuring success and navigating the evolving landscape of impact investing.