SOPHIA – Social Philanthropy and Investment Advisors
The Impact Investor’s Perspective:
Building Sustainability Metrics an...
SOPHIA – Social Philanthropy and Investment Advisors
Discussion Points
• Impact Investor Reporting Perspective
• HNWI/Fami...
SOPHIA – Social Philanthropy and Investment Advisors
Presenter’s Perspective
• International financial services background...
SOPHIA – Social Philanthropy and Investment Advisors
Impact Investor Reporting Perspective
• Private transactions, in smal...
SOPHIA – Social Philanthropy and Investment Advisors
Impact Investor Reporting Perspective, continued
• Starting point: ch...
SOPHIA – Social Philanthropy and Investment Advisors
Family Office Limited Partner Approach: Toniic
• Change theory: promo...
SOPHIA – Social Philanthropy and Investment Advisors
Family Office Limited Partner Approach: Toniic, continued
• Cross-por...
SOPHIA – Social Philanthropy and Investment Advisors
Sample Institutional LP Approach: Endowment
• Change theory: making i...
SOPHIA – Social Philanthropy and Investment Advisors
Sample Institutional LP Approach: Endowment, continued
• Stakeholder ...
SOPHIA – Social Philanthropy and Investment Advisors
Sample GP Approach: Elevar Equity LLC
• Change Theory: connecting und...
SOPHIA – Social Philanthropy and Investment Advisors
Sample GP Approach: Elevar Equity, continued
• Impact Metrics Reporti...
SOPHIA – Social Philanthropy and Investment Advisors
Challenges
• Quantitative indicators don’t tell full story
• Early st...
SOPHIA – Social Philanthropy and Investment Advisors
Recommendations for Impact Investors
• Build holistic investment thes...
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Joan trant presentation sustainability reporting tbli nyc workshop 2 june 2013

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TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing.

TBLI CONFERENCE USA New York 2013
Monday and Tuesday, June 17-18, 2013

Speakers:
Paul Rose
Vice President of the Royal Geographical Society
Richard L. Kauffman
Chairman for Energy Policy and Finance for the State of New York - Governor of New York's Office and Cabinet - United States of America
Martin Rapaport is chairman of the Rapaport Group and founder of the Rapaport Diamond Report

Published in: Economy & Finance, Business
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Joan trant presentation sustainability reporting tbli nyc workshop 2 june 2013

  1. 1. SOPHIA – Social Philanthropy and Investment Advisors The Impact Investor’s Perspective: Building Sustainability Metrics and Reporting into the Investment Process Joan Trant TBLI New York June 2013
  2. 2. SOPHIA – Social Philanthropy and Investment Advisors Discussion Points • Impact Investor Reporting Perspective • HNWI/Family Office Limited Partner (LP) Approach • Institutional LP Approach • General Partner (GP) Approach • Conclusions HNWI: High net worth individual
  3. 3. SOPHIA – Social Philanthropy and Investment Advisors Presenter’s Perspective • International financial services background • Community development initiatives throughout Latin America in collaboration with in-country nonprofits • International association of institutional investors in microfinance • Assisting philanthropic organizations and social entrepreneurs to achieve goals related to global social advancement Sophia, wisdom in Greek, is the combination of knowledge, insight and judgment. It is the comprehension of what is true coupled with optimum decisions as to actions that bring about the greater good.
  4. 4. SOPHIA – Social Philanthropy and Investment Advisors Impact Investor Reporting Perspective • Private transactions, in smaller companies, no standard sustainability reporting • Small portfolio allocation of LP impact investments, constrained resources for making, monitoring investments • Limited, targeted metrics with minimal burden for investees, GPs and LPs to gather, analyze and report • Both consumers and producers of reporting, challenged by specific metrics to capture investees' performance yet broad enough to allow some level of aggregation across portfolios
  5. 5. SOPHIA – Social Philanthropy and Investment Advisors Impact Investor Reporting Perspective, continued • Starting point: change theory, with defined financial and impact objectives • MDG, PRI, IRIS, GIIRS as frameworks; develop proprietary metrics and process with investee participation • Focus on outputs, less on outcomes • Anecdotal data to gauge welfare improvement MDG: United Nations Millennium Development Goals (http://www.un.org/millenniumgoals) PRI: Principles for Responsible Investment (http://www.unpri.org) IRIS: Impact Reporting and Investment Standards (http://iris.thegiin.org) GIIRS: Global Impact Investing Rating System (http://giirs.org)
  6. 6. SOPHIA – Social Philanthropy and Investment Advisors Family Office Limited Partner Approach: Toniic • Change theory: promote sustainable global economy by funding and nurturing early stage enterprises that offer market-based solutions for intractable societal issues (target: $100M investment) • Toniic E-Guide to Impact Measurement – observations based on analysis of 13 syndicated investments • Members’ range of approaches: none-limited-standardized-customized; and discrete-aggregated • Benefits of standardization: communications, comparability, cost • Methodology sources: IRIS, GIIRS, industry experts, Toniic members, investees Toniic (http://toniic.com)
  7. 7. SOPHIA – Social Philanthropy and Investment Advisors Family Office Limited Partner Approach: Toniic, continued • Cross-portfolio indicators • # Clients, # jobs created, earned revenue, net income, new capital • Quantitative, indicative of business performance • Cross-portfolio indicators may lead to “false precision” • Sector indicators • Two per sector; measure social and environmental impacts • E.g., agriculture enterprise payments to suppliers, sustainably cultivated land (hectares) • Enterprise indicators • Bottom-up, quantitative and qualitative, agreed upon with investees • Include anecdotes to capture community effects, e.g. Indian rickshaw finance company data collection used to help clients access federal housing subsidy
  8. 8. SOPHIA – Social Philanthropy and Investment Advisors Sample Institutional LP Approach: Endowment • Change theory: making impact investments in financial inclusion for welfare improvement will accrue benefits for institution’s stakeholders and be a catalyst to “crowd in” other impact investors • Private placement fund and direct investments • Investee data, based on IRIS and proprietary indicators: • Bias toward metrics investees already track to reduce reporting burden • 15 metrics, requested in due diligence and annually; tracked using Pulse • Lending practices • Product diversification, especially savings, and access • Financial and risk as proxy for client-centered business model
  9. 9. SOPHIA – Social Philanthropy and Investment Advisors Sample Institutional LP Approach: Endowment, continued • Stakeholder data: • Returns compared to traditional investments • Coherence with other programs, e.g. research • Industry data: still in progress • Onus of fiduciary responsibility drives due diligence • Understanding GP’s social/financial priorities and potential trade- offs • Verifying co-investors’ social and financial motivations • Assessing level of GP involvement to ensure investees’ sustainability • Sensitive to GPs’ and investees’ limited resources for reporting
  10. 10. SOPHIA – Social Philanthropy and Investment Advisors Sample GP Approach: Elevar Equity LLC • Change Theory: connecting underserved communities to global networks • Holistic approach: financial and impact outcomes should be consistent with and embedded in investee’s business model • Key Performance Indicators (KPIs) based on: What problem is investee trying to solve? What outputs demonstrate impact? • Proprietary metrics with four dimensions of data collection: • Who are the investee’s customers? • How well is investee scaling outreach to the underserved? • How does the investee express value creation? • How well is Elevar “crowding in” private sector capital?
  11. 11. SOPHIA – Social Philanthropy and Investment Advisors Sample GP Approach: Elevar Equity, continued • Impact Metrics Reporting • Negotiation with investees on KPIs • Quarterly reporting for internal financial and impact reviews • Annual reports to LPs (their preferred frequency) • Fund Level reporting, e.g. Finance Companies • Number of customers • Gross loan portfolio • Debt crowded in • Equity crowded in • Follow-on rounds since initial investment
  12. 12. SOPHIA – Social Philanthropy and Investment Advisors Challenges • Quantitative indicators don’t tell full story • Early stage companies don’t score well in ratings system; required data is non-existent, in development or rapidly changing • Tracking /reporting generates collection and reporting costs • Qualitative research suffers gaps between investor and academic approaches • Entrepreneurs’ opportunity cost perception is high • “One size fits all” approach doesn’t reflect investor or investee diversity
  13. 13. SOPHIA – Social Philanthropy and Investment Advisors Recommendations for Impact Investors • Build holistic investment thesis based on change theory with consistent indicators • Integrate indicators into due diligence and investment review • Dialogue with investees to establish mutually acceptable metrics and reporting methodology • Collaborate with co-investees to reduce reporting burden • Coalesce around standardization, but make your voice heard • Collect quantitative and qualitative data over time

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