KEY TAKEAWAYS
The three main components of ESG impact measurement
There are three widely referenced frameworks (see table below) to derive a baseline of the impact components. The second column in the figure summarizes the frameworks’ descriptions of the key defining features of impact investments, while the third column lists the mechanisms by which investors can create impact through investment processes. Finally, the fourth column outlines how these frameworks require the impact created by investments to be measured.
Reviewing the frameworks described above, we find that despite varying approaches, there are some common elements prescribed across all three. What the GIIN describes as intentionality is observed in the other two frameworks with the IMP using “what is the goal” as a key evaluation criterion, and Kölbel et al.’s framework focusing on “causality”.
Next we observe that all three frameworks include creating a measurable and observable change that would not be possible without the investment in consideration as a key criteria for it to qualify as an impact investment. A commonly used term for this is “additionality”.
Finally, there is a focus across all three frameworks on who the investment is impacting, and helping provide capital to enable companies to “grow”. This points towards the importance of inclusivity in who the impact capital is being supplied to and who the final beneficiaries will be.
We therefore conclude that the baseline for all the frameworks consists of the intentionality, additionality, and inclusivity of the impact resulting from the investment decisions under consideration. We present these three impact components in detail in the table below.
