Impact measurement is a critical aspect of sustainable investing, as it allows investors to assess the extent to which their investments are having a positive impact on the world. There are a variety of ways to measure the impact of sustainable investments, including both quantitative and qualitative methods.
One common approach to impact measurement is to use financial metrics, such as the return on investment (ROI) or the internal rate of return (IRR). These metrics can provide a sense of the financial performance of the investment, and can be compared to traditional investments to determine whether the sustainable investment is outperforming or underperforming.
However, financial metrics alone do not provide a complete picture of the impact of a sustainable investment. To more fully understand the impact of an investment, investors may also consider using non-financial metrics, such as environmental, social, and governance (ESG) metrics. These metrics can help investors understand the extent to which the investment is contributing to environmental sustainability, social responsibility, and good governance practices.
There are a variety of tools and frameworks available to help investors measure the impact of their investments. One popular framework is the Global Impact Investing Rating System (GIIRS), which provides a comprehensive assessment of the impact, governance, and financial performance of impact investments. Other frameworks, such as the Social Return on Investment (SROI) and the Environmental, Social, and Governance (ESG) score, focus specifically on non-financial metrics and can provide valuable insights into the social and environmental impact of an investment.
In addition to using frameworks and metrics to measure impact, investors can also consider engaging with the companies or organisations in which they are investing. This can help investors better understand the impact of their investments and provide an opportunity to influence the direction of the investment.
Overall, impact measurement is an important part of sustainable investing, as it helps investors understand the extent to which their investments are having a positive impact on the world and allows them to make informed decisions about where to allocate their capital.