Perhaps all that impact investing needs to go mainstream is the star power of a global celebrity; especially one who believes he has the answer to the industry’s holy grail—a credible way to show that the money is actually doing good.
Enter Bono, U2 frontman and global philanthropist. He is teaming up with private equity firm TPG to prove that impact investing can be measured in metrics that investors can understand. Getting that right will have big investors rushing in, they predict.
The new company, Y Analytics, launched last month at the World Economic Forum in Davos. Y Analytics says it will use third-party research to measure social and economic change created from investments and will act as an intermediary between researchers and investors.
“To persuade the biggest institutional investors to commit their funds to tackling some of the world’s most urgent challenges we need to be as confident about the impact returns as we are about the financial returns – fuzzy thinking just won’t cut it,” Bono said in a press release.
Y Analytics is an outgrowth of TPG’s $2 billion Rise Fund. It will be led by Maryanne Hancock, a former McKinsey partner, who said the group will build tools to predict, underwrite, and manage impact; the company will in turn share that knowledge with the public.
“We are building on the extensive effort of others, who have worked for decades to advance the world’s understanding of what creates impact,” Hancock said. “Enabling better decisions around how the world directs capital towards change will be vital in achieving the progress we seek to make.”
The need for reliable, credible, universal metrics to measure impact investing is becoming more urgent as mainstream private equity players enter the space.
The number of social investment funds has quadrupled over the past 20 years to 200, according to data from the non-profit Global Impact Investing Network, which estimates the industry is currently worth $228 billion.
Other private equity firms have turned to third parties like Business for Social Responsibility for help with impact measurements or use the third-party reporting framework The Sustainability Accounting Standards Board.
While Y Analytic’s venture into impact measurement is generally welcomed, at least publicly, according to investment news source Impact Alpha, some are privately critical that the Rise Fund is taking an approach outside emerging industry norms.
The critics, according to Impact Alpha, suggest that the Rise Fund’s method may cherry-pick positive outcomes without accounting for possible negative consequences.
Others credit TPG for elevating the importance of impact management among a more mainstream audience.
The bottom line: If Y Analytics manages to come up with a better way to measure outcome, it will be welcome news to investors, for whom lack of reliable research on impact investing continues to be a hurdle.
"For those who need to make the case for impact investing to their trustees, this is a huge pain point," Institutional Limited Partners Association spokeswoman Emily Mendell told Business Insider.
Regulators, too, would welcome a credible way to measure impact of investments. Last month, the Organization for Economic Cooperation and Development called for more rigorous standards to prevent “impact washing” - where firms seek to disguise unpopular practices or overstate the impact of their investments.
Image credit: World Bank/Flickr
Based in southwest Florida, Amy has written about sustainability and the Triple Bottom Line for over 20 years, specializing in sustainability reporting, policy papers and research reports for multinational clients in pharmaceuticals, consumer goods, ICT, tourism and other sectors. She also writes for Ethical Corporation and is a contributor to Creating a Culture of Integrity: Business Ethics for the 21st Century. Connect with Amy on LinkedIn.