How Impact Investors Truly Measure Their Impact

What is impact investing, and how does it differ from regular investing? Impact investing is about having an investment strategy that seeks to generate positive, measurable social or environmental outcomes. It seeks to create those returns across a spectrum: financial gain is part of it, on the investing side, and then the other part of it is purposeful, positive impact. That can encompass a whole set of things, ranging from climate change to education, health care, income inequality—but impact investing is really about the intersection and intentionality between the two. When did people start investing this way? Before the term “impact investing” was coined, there were already people doing similar work. One precursor, “socially responsible investing,” originated centuries ago with religious institutions applying ethical screens to exclude certain investments that conflicted with their moral or doctrinal principles. In the 18th and 19th centuries, Quakers prohibited members from investing in the transatlantic slave trade and weapons manufacturing. In 1928, a Boston-based ecclesiastical group launched the first mutual fund to apply religious screens that excluded companies involved in alcohol, tobacco, and gambling. More recently, we’ve seen a rise in ESG investing—assessing companies on environmental, social, and governance criteria. And then there were a whole set of funds like DBL, which were saying, “Hey, we’re going to invest at the very early stages in companies that can generate significant returns and drive towards meaningful, positive social or environmental change.” In 2007, a group of people from these different pillars in the field convened at the Rockefeller Foundation’s Bellagio Center, where they came up with an initial definition. (Theirs is “using profit-seeking investment to generate social and environmental good.”) In the years after those meetings, the Global Impact Investing Network (GIIN) was launched, and we started to see much more academic research and writing about this idea. Big foundations such as the Omidyar Network started to pay attention. Over that period, the amount of money in the sector has grown. When we launched our first fund within J.P. Morgan in 2003, it was one of the very first impact investing funds. DBL originally focused on place-based investments ensuring more equitable growth across the Bay Area during the first tech boom; through that work, the company created its broader “double bottom line” strategy with early investments in solar, electric vehicles, and battery companies. That first fund managed $75 million. Today, our firm oversees over $1.5 billion in assets under management, and the sector overall is estimated to be at $1.571 trillion. That’s a lot of money. How do people in your field ensure they’re allocating it well? The financial returns are easy enough to measure, but how do you measure the impact side? There are industry groups that develop measurement tools that anyone in the field can use, such as GIIN’s IRIS+ metrics, which have both qualitative and quantitative performance metrics that investors can use to evaluate what kind of environmental and social impacts they’re seeing. In DBL’s case, we’re meeting companies at all different stages. We happen to have a very robust proprietary framework that we developed with the support of the Ford Foundation more than 20 years ago, at our inception. It was much more akin to what you would see for a nonprofit that has to report a whole set of measurements around impact. We’ve been building on it and refining it over the decades, adding layers of qualitative and quantitative metrics. And as the field has advanced and new metrics and methodologies come in, we get to take the best of those and augment what we’ve been doing for a long time. But it’s not one-size-fits-all. One of our portfolio companies, for example, is a wildfire prevention company, BurnBot. We are working with them to build an impact framework that goes way beyond the DBL baseline framework. We’re looking at things related to the health and carbon impact of wildfires; preventing how much smoke people are inhaling; and jobs created in rural communities, because this company has a very strong job-creation component to their work. It’s kind of like peeling back the layers of the “impact onion,” which is challenging, particularly with multisectoral companies. Can you walk me through the process of identifying an investment? Are there tradeoffs in terms of returns and impact? I always start by debunking this idea of tradeoffs. This isn’t true for the entire field and for every investment manager, and I started my career in the nonprofit world where foundations and other folks do take a tradeoff on returns in order to do really amazing work. But the DBL approach, and that of a lot of others in our field, is “No compromise.” We look for investments that are scaling with respect to both impact and financial success. That means that there are many, many things that don’t make it through our investment lens, because they need to meet both of those criteria. But we feel strongly that this method has resulted in finding better companies and organizations. We often get involved at very early stages, when the companies have very small teams, and we look for areas where technology can truly make something better, faster, cheaper, lighter. Our entrepreneurs are kind of like the canonical David versus Goliath—these are tiny teams taking on big incumbent industries that have often been built on the back of a carbon-based economy, and that have not had to operate in a greener, more sustainable way. With any company, returns never go directly up and to the right; there are always a bunch of ups and downs in between. We think that having those entrepreneurs who have a real mission behind what they’re doing, instead of a more mercenary approach, is amazing for building organizations that can have tremendous impact over time. Who does the measuring, and who pays for the cost of measuring? It really depends. We have a company in our portfolio called Fiber Global that is replacing traditional heavy- and medium-density fiberboard products with completely recycled materials. In their case, the entrepreneur was really passionate about the impact measurement side of it, and they have a product that is better, faster, cheaper, and more sustainable; they were already measuring a whole set of metrics related to water usage and carbon emissions, which was one of the things that got us excited to invest. Sometimes we find amazing companies that are already doing a great job generating impact, but not a great job measuring it. But that’s an area where the investor can come in and help, especially with a young company that doesn’t yet have the time or the tools to measure their impact. With earlier-stage companies, we might help set up a framework for measuring impact and integrating the capturing of those metrics into work practices and organizational culture. For example, we’ve helped build carbon emissions calculators for companies, such as our electric coffee roasting company, Bellwether. We helped create a whole methodology around switching from natural gas roasters to electric ones so we could quantify those emissions savings in a really robust way. Other times, we’ve worked with third parties around things like life-cycle analysis for specific products. In the case of our single-use plastic replacement company, Terram Technologies, we’ve brought in academic resources to look at how their product performs better than plastic in cost and carbon emissions. We also have a smart building company, R-Zero, that uses sensors to analyze a building’s occupancy and utilization. With them, we brought in a researcher to assess how much their technology could save building owners in electricity costs, and what that drives in terms of carbon footprint reduction. After we make an investment, there’s a whole workstream with a firm about how to capture even more metrics and communicate them in a format that can be shared with limited partners, customers, or with their employees. People want to be part of an organization that is delivering an impact. What are some of the challenges in measuring impact? When you notice an unexpected impact, whether that’s a positive or negative, once a project is underway, how do you capture that? One thing to keep in mind is that things evolve and change over time. In our case, we get involved with companies that are building new products, new solutions. They are bound to evolve; it’s never stationary or set in stone. As an industry, though, I think we’re getting more comfortable figuring out how to readjust our perspective and measure things differently. You can be eight years in with a company and it may look very different than when you started—so you might not have the longitudinal data results that you were hoping for when they were just launching. How are people in your field making use of technological innovation to help solve impact measurement problems or make measuring impact more efficient? In theory, AI and LLMs should be able to make capturing data and streamlining its presentation more effective, and we’re starting to test out some of those tools. For example, we have a company called Airspace that uses AI and machine learning to calculate billions, sometimes trillions, of different routes to more efficiently ship the most time-critical packages—everything from a part needed for a grounded airplane to an organ that needs to get to a hospital for transplant. As part of this advanced AI routing, the company can improve speed and accuracy while helping customers optimize routes based on carbon emissions. In addition to providing this data and insights to consumers, AI also provides incredibly robust, granular, trackable, and transparent impact reporting data for investors. This would not have existed with the same level of fidelity prior to AI. Are there some sectors that are easier than others when it comes to evaluating impact? None of it falls completely into the bucket of “easy.” Some sectors are by nature harder to evaluate. In education and health, you have to take into account what customer base a company is supporting, and how it’s working with historically marginalized groups; there might also be difficulties measuring impact over a long period of time. On the other hand, if it’s a company that’s delivering clean electrons to the grid, you can count those electrons and see the impact clearly. I mentioned the wildfire prevention company that’s looking at several different types of metrics, including around job creation, health, and environmental impact. The ones that are the most challenging to measure are oftentimes the most rewarding ones. Although it’s harder and it might take longer, you can see the full depth of impact in a bunch of different ways and places. That’s part of what makes this sector so interesting—it is always evolving!