In the past years, there has been enormous progress on impact measurement. However, while there are a variety of approaches (also see the four approaches presented in Chapter 5), there is no commonly accepted best practice to measure the (potential) positive or negative environmental or social contribution of an investment.
Most likely, you will need to develop your own approach, depending on your investment and topical focus. However, there are a number of different frameworks that can serve as an inspiration and basis, which you can then adapt to your own requirements and objectives. In this Playbook, we will gather more and more approaches to share with the VC community over time.
It is key to measure
1. Measuring sustainability in the investment process
- Identify the material sustainability issues you want to measure, in alignment with SMART objectives and strategic priorities.
- Define metrics to apply in the entire investment process – to your initial screening process, but also in investment decisions – alongside financial and other criteria.
- Report on your progress in regards to the level of integration of sustainability in your investment process towards LPs.
- Assign the responsibility to collect and report on the data of the material sustainability topics to the respective investment managers.
2. Measuring sustainability progress of portfolio companies
Once the startup has identified the material sustainability issues, prioritized the ones to focus on, and has developed measurable objectives and indicators, make sure
- each of your portfolio companies appoints someone who is responsible for sustainability topics
- the startup is able to collect the data for the indicators they want to measure
- the startup has a clear baseline of all the data it collects as well as clear processes on how to collect the data and when
- to track the progress in regular intervals, i.e. at board meetings, and that sustainability is an integral part of reportings
- to integrate this progress in your LP reporting cycles
- the responsibility to collect, track and report on this sustainability progress is an integral part of each investment manager
3. Measuring improvements of your own footprint
- Set a clear baseline in regards to the environmental and social topics you care most about and where you want to make a change (see topics in Chapter 7).
- Set up clear data collection processes, KPI tracking and reporting cycles – internally and externally / towards LPs.
- Assign responsibility for overall steering and reporting to one General Partner.
Further resources on impact assessment and measurement
- Start Global: The ROSE Framework
- The Impact Investing Guide
- IRIS+: Core Metrics Set
- Global Impact Investing Network: Methodology for Standardizing and Comparing Impact Performance
- It is key to measure 1) the sustainability of your prospective investments, 2) the progress on sustainability of your portfolio companies, and 3) the improvements of your own footprint.
- For all topics to be measured, 1) define what you want to measure, 2) make sure data collection is possible, 3) set up the baseline, and 4) integrate progress into regular reportings, e.g. in board meetings or LP reportings.
- Make sure to assign clear responsibilities for data collection, tracking and reporting.