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A Common Language for Impact Investing

Capital Markets | Wednesday April 13th, 2011 | 1 Comment

The following open letter is a part of the Presidio Graduate School’s Capital Markets course. For one of the course assignments, students write a letter to an oversight body, government entity or other appropriate institution. The topic: changing the sector of capital markets that relates to their chosen topic so it reinforces principles of sustainability. Follow along here.

An Open Letter to The Honorable Mary L. Schapiro, SEC Chairman

Request for Action: SEC Recognition and Adoption of IRIS

Dear Chairman Schapiro,

As graduate students pursuing MBAs in Sustainable Management at Presidio Graduate School, we are advocates for the myriad possibilities for positive economic and social development inherent within the emerging asset class of impact investing. We are writing to ask for your support in considering the adoption of IRIS, the Impact Reporting and Investment Standards taxonomy, to be officially recognized as authoritative by the Securities and Exchange Commission. IRIS’ information and data accessibility speaks directly to your committee’s objectives to ensure that investors are provided full and fair disclosure of all important facts.

IRIS is a data aggregator but also under development is a web-based tool that will allow users to access data and create benchmarks across sectors, regions, or specific metrics. Adding to its robustness, IRIS shares data with the Microfinance Information Exchange (MIX). Of significance is the growing consensus within the impact community that the adoption of common reporting standards is critical for the effectiveness and scaling of impact investing opportunities.

We urge your consideration of IRIS because impact investors require a common language to describe social and environmental performance to ensure that this performance can be consistently measured across portfolios.  Currently, investors who collect performance data on impact investments must rely on a growing number of proprietary measurement systems.  Fragmentation and lack of transparency result in high transaction costs to investors, decreasing investment as well as weakening credibility among the broader development community.

A standardized metric could facilitate the supply side of the equation and capital flow to increasingly diversifying impact opportunities. A standardized metric provides foundational grounding to guide impact investing companies toward embedding strategic best practices, helping position them for success. We acknowledge that while no standard is perfect IRIS offers a viable foundation from which increasing input and counsel from multiple stakeholders can offer continuous improvement toward refining impact metrics. SEC engagement and oversight could drive an infusion of mainstream capital toward sustainable market-based solutions to social and environmental challenges.

As the Investor Advisory Committee was tasked to evaluate required company disclosure of material ESG (environmental, social and governance) risks in 2010, as the SEC is concurrently moving to protect investors with climate change disclosure, as the Work Plan for developing a single set of high-quality, globally accepted accounting standards evolves, and as the Dodd-Frank reforms and protections are implemented, common standards adoption in impact investing is a natural step. Much like GAAP created the infrastructure for Financial Reporting, IRIS will serve Impact Reporting by creating a taxonomy and system of criteria evaluation. As GAAP established financial comparability across companies, IRIS is poised to establish consistent metrics and aggregate compliant data that facilitates benchmarking and comparability within impact investment.

Chairman Schapiro, we urge the SEC to become actively involved in the important work of reducing market inefficiencies, like information asymmetry and lack of oversight, by supporting shared standards for Impact Investing, specifically IRIS. Market participants need tools to make responsible decisions, and the SEC’s active involvement is a strong market signal for the credibility and potential for impact investing.

Thank you very much for considering our request. We look forward to hearing how we may be of service in support of the adoption of common standards and reporting practices for impact investing.

Very best regards,
Margaret Hartwell
Jeannie Linam

 


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