Impact Investing 101 with IMM Expert Ishita Jain
In the investing world, impact investing is less of a trend and more of a movement. By investing in technologies and organizations that aim to make the world a better place, impact investors can potentially reap financial benefits while also feeling satisfied in the knowledge that their money is making a difference.
This isn't some niche investing concept. It's a big deal, and it's only getting bigger. More and more investors are recognizing that impact investing is a win-win: impact investments can bring in significant returns, and investors can be proud of the fact that they're playing a part in positive social and environmental change.
"The fact that individual investors can make a profit as well as do good in the world leads me to believe that impact investing is becoming more appealing to individual investors as well. Individuals who are looking to invest on their own can invest in ESG funds, which have stricter requirements than traditional funds, but still provide sufficient financial returns."
These are the words of Ishita Jain, Impact Manager of the Autodesk Foundation. Originally from an industrial design background, Jain transitioned into impact measurement and management, or IMM, after achieving a great deal of success working with big-name design clients.
With the Autodesk Foundation, Jain makes sure that money invested into social change and environmental sustainability efforts goes as far as possible, specifically through IMM and ESG Reporting. But we'll have more details on IMM in a moment. First, let's look at some numbers relevant to impact investor satisfaction with these types of investments, all of which Jain brought to our attention.
"According to the Global Impact Investing Network's 2020 Annual Impact Investor Survey, 68% of respondents reported that in 2019 their investments met their financial expectations. 20% said they outperformed. In addition, a 2020 analysis from asset-management firm Arabesque Partners found that 80% of reviewed studies demonstrated that sustainability practices positively influence investment performance."
Based on this, it would be safe to say that many impact investors are happy with these specific types of investments, and we're likely to see impact considerations even in relation to investment opportunities that aren't explicitly impact investments.
Jain is going to provide some information and context on impact investing, through the lens of IMM, for curious investors who are interested in making a difference.
What and why is IMM?
Impact investing starts with a relatively simple motivation: to make successful long-term investments that also benefit the world at large.
However, actually executing successful impact investments is far more complex. How can an investor or an investing organization tell which opportunities are the good ones? How do they know whether their money will go to the right places?
Well, that's what IMM is all about. There are no guarantees, of course, but sophisticated IMM can give an impressively accurate suggestion of how an investment is likely to perform, namely regarding the real-life impact of the investment.
If you're looking for a more official definition, the GIIN says that IMM includes identifying and considering the positive and negative effects of one's business actions have on people and the planet. From there, it's about finding ways to mitigate the negative and maximize the positive in alignment with one's goals.
In her work with the Autodesk Foundation, Jain strives to stay focused on these core goals of IMM.
"Impact measurement and management helps prioritize high-impact innovations to inform investment decision-making. We want to ensure that our philanthropy dollars are going to support the most impactful innovations. It pushes us to consider information about drivers of impact, assumptions, and risks to learn, adjust, and improve impact performance over time for the organizations that we invest in."
Major investors can't be won over with shareholder sweet talk. IMM professionals need to verify that an impact is indeed being made.
"We do this by defining an impact goal, planning how to measure it, measuring it, analyzing the data against the impact goal, learning from the process, improving, refining the approach, and repeating the same process again."
This work is accomplished through the use of numerous advanced frameworks and can even include predictive impact modeling. For each impact goal, there are key metrics that can be measured and analyzed in order to gauge the success of an investment.
For Autodesk, the goal of their own IMM is to zoom in on the company's environmental, social, and corporate governance impact, summarized as an ESG score.
By improving its ESG score, the company is making progress toward goals of reducing carbon footprint and increasing diversity and inclusion.
IMM resources for individual investors
But of course, a company like Autodesk, when conducting IMM work, has more resources by which to conduct this work as compared to the average individual investor.
So we asked Jain whether there are any ESG methods or resources that an individual investor can use to better gauge the worthiness of a potential impact investment.
Jain's first suggestion was to take a look at a company or a fund's ESG score. Unfortunately, there can be quite a bit of variation in these scores based on how they were determined.
"Companies currently use various methodologies for calculating ESG scores, so there's no one authority on ESG scores. Therefore, checking these and comparing these scores requires a lot of research."
The next suggestion was to look into company-published impact reports. Companies labeling themselves as impact investment opportunities will almost always offer this type of report to prospective investors or to the public at large.
"This report may outline how to what degree a company has reduced its carbon footprint or any changes to its policies such as gender diversity, pay equity, etc."
Individual investors may also be able to find sustainability reports or even get an idea of how company employees rate and describe internal work culture through a site like Glassdoor.
Still, Jain agrees that it would benefit both investors and companies for more IMM-related resources to be made readily available to investors. These resources could even attract more people to impact investing as a whole.
The inherent complexity of IMM
It's very important to note that IMM, in its current form, is still relatively young. Even the pros are still learning about the best way to approach various aspects and how to analyze available data.
Jain confirmed that IMM isn't easy to jump into, and any person or group of persons interested in impact investing should accept the inherent complexity.
"[IMM] can become overwhelming very quickly, and it's easy to get carried away with a host of metrics and lose sight of what really matters. This is an evolving area of work that requires patience and comfort with ambiguity. It’s important to have a long-term view of impact and stay true to the ultimate objective of creating impact accountability and generating actionable insights that can help maximize benefits to the people and planet."
Will IMM always be this way? Probably not. Even just in terms of Autodesk's advances in the area, Jain mentioned how the company is currently providing advanced impact measurement solutions like EC3, or Embodied Carbon in Construction Calculator in their software.
New standards are being formed, new and better ways of measuring impact are being crafted, which is excellent news not only for investors but also for the millions of people who stand to benefit from these investments.
Shifting toward impact
We'd like to end on a more personal note, in the hopes of inspiring some of our readers to take a closer look at impact investing and possibly even add their own impact investments to their portfolio.
This is something we touched on at the very beginning, but Jain wasn't always working in IMM. For a large portion of her career, she designed high-end luxury products. It was more recently that she shifted gears, focusing instead on a field known as 'design for social innovation.'
This field is about influencing social conditions that support and encourage equity, social justice, and a connection to nature.
This change opened all kinds of doors, career paths that Jain hadn't previously considered.
"Design for social innovation led me to philanthropy and impact investing. I became increasingly interested in ensuring that our limited resources flow to the most impactful innovations for fighting the negative impacts of climate change and inequality, which in turn brought me to IMM and ESG reporting."
It takes guts to transition away from a successful, established career in one area and dive into a very different specialization.
But as Jain just articulated in the above quote, this new path was 100% in-line with her personal and professional goals.
It's these kinds of leaps that contribute toward progress on a global scale, and impact investing is just one of many meaningful ways that investors can accelerate the process.