Analysis Firms Battling for Pole Position as Impact Investing Goes Big

Which companies -- and which metrics -- will survive is up to investors to decide. Institutional investors all the way down to individuals -- or even you -- can vote with your wallets.
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By Berry Kennedy, MS/MBA Candidate, Erb Institute, University of Michigan

"Not to mean to insult anyone," says Paul Sanford of the private investment-management company TriLinc Global, "but it can a bit myopic." TriLinc's chief investment officer, he's talking about choosing between serving financials-first and social-first impact investors. "But if you have bigger goals, and TriLinc's goal is really to revolutionize how you invest... there's room for all of it," he says.

Big claims were a common theme at TBLI 2013, a sustainable finance conference held in Zurich, Switzerland, this past November. There's a feeling that sustainable finance is on the cusp of going big, and small and large companies alike are lining up to join the race to be the one the industry will turn to for a variety of services, in areas ranging from metrics creation and impact evaluation to data collection.

Matthew Vitamente, founder of the startup Impact Venture, sees the fine line that participants draw between discussion and selling. "Everybody is pitching something," he says. The question is, What do you have to offer?

It is not always easy to know. The evolution of a single organization, B Lab, reflects an industry in rapid transition. B Lab is the nonprofit behind B Corps certification and legislation, B Analytics, and the social impact IRIS metrics.

"For years we've been working on the input," says Beth Richardson, director of B Lab's Global Impact Investing Ratings System, or GIIRS. "This is really the outcome component we are focused on now."

The result of this industry growth is a variety of new business services that use sustainable finance metrics as inputs. As with social media, the value in these applications is often driven by acquiring a critical mass of users, one that so far has not settled on a single provider for its different needs.

If one company does have an edge in the company and fund-rating space, it might be B Lab. Its emphasis on usability, or "output," has largely centered on the 2013 launch of B Analytics, a merger between the Salesforce-based investment management tool Pulse (developed by nonprofit venture fund Acumen), and B Lab's GIIRS. According to Richardson, one of the things B Analytics enables is benchmarking, which she says was formerly difficult to do.

"There has been no benchmarking... there has been no opportunity to know what normal is," she explains. Now, "you start to be able to say what's good enough using data."

Vitamente's Impact Venture is a new platform that will allow investors to follow the "pipeline" of startups coming through social enterprise incubators. In contrast to B Lab's move towards metrics standardization, Vitamente claims that metrics are "generic right now, and I think that when we get things on a platform, there is going to be a lot more flavor to it."

Karl Richter, CEO and co-founder of Engaged Investment, the social enterprise behind EngagedX, a platform aggregating financial and social data on impact investing transactions, has a similar view. EngagedX is agnostic in that it doesn't score any investments but rather collects the metrics scores created by others, with a special emphasis on including standard financial metrics to allow for comparability with other capital markets. In this way, it is not a competitor but rather a complement to efforts like B Lab, Richter claims.

"It's not for us to say," says Richter, speaking about which metrics should be used. "All we're doing is holding up a mirror to the market. I think this idea of trying to force everyone into reporting one metric isn't necessarily helpful."

Richter too is focused on achieving change on a large scale. He wants EngagedX to become the industry's financial and social impact data aggregator. "More benchmark data is needed to encourage a broader range of people to consider investing in sustainable finance," and for impact investing to be part of investors' day-to-day asset allocation frameworks, he says.

"At the end of the day when... you want to be able to shift the needle on the amount of capital in the market, they can say, 'Well, that's all really nice... but tell me the financial characteristics," Richter says.

Not everyone is happy with the changes in the field. "Two weeks ago, I went to a conference, and honestly, you cannot see anymore the difference between private equity in... a very bad business... and impact-investing private equity," says former investment banker and leader of Slow Money Europe Aymeric Jung. "You have to watch out for this, how business with very good thought at the beginning just can move into... fast money." Or, in other words, business as usual.

But the merits of integration into the mainstream financial system are a matter of perspective. "We did everything in our power... to make it just like other funds that are, broadly speaking, in our genre," says TriLinc's Sanford. His company's enormous effort to overcome regulatory hurdles -- such as registering its TriLinc Global Impact Fund with the U.S. Securities and Exchange Commission and all 50 U.S. states (plus two territories) -- allowed it to launch an impact investing fund to retail investors. Previously, it had been available only to institutional investors. In theory, anyone with the minimum $2,000 buy-in should be able to invest now.

Sanford isn't worried about a dilution of impact or imperfect metrics. "At the end of the day, you have to be able to measure progress," he says. "Why? Because your constituents -- your investors, ultimately -- will think that way." "Esoteric" metrics, he says, "will fall by the wayside."

Which companies -- and which metrics -- will survive is up to investors to decide. Institutional investors all the way down to individuals -- or even you -- can vote with your wallets.

This story was originally published on on 3 January, 2013.

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