Investing, whether you want financial returns or social impact, is hard. What makes sustainable investing even harder is the lack of universal performance metrics. A retail investor interested purely in financial returns has a wide array of investment products and strategies to choose from (equities, funds, debt, alternatives, real estate, etc.). While the time horizon of these different asset classes and strategies vary, metrics like Return on Invested Capital (ROIC), Internal Rate of Return (IRR), etc. are universal ways to benchmark investments to one another. Sustainable investing lacks agreed upon methods to evaluate social impact, making it harder for impact investors to understand whether their investment had the desired outcome. The absence of standard performance indicators in sustainable investing poses an additional challenge for retail investors while also creating an opportunity for impact investors to drive the conversation around social returns.
Impact investors are currently deciding for themselves how to measure the social benefit of their investments. Acumen, one of the older well known impact funds, using a logic model. The fund I worked for measured success in terms of lives impacted. The TPG Rise Fund uses a new metric called the impact multiple of money (IMM). However, there is no way to compare the social returns of these three funds to each other. Two retail investors could invest in completely different asset classes (equity vs debt) in 2010 and see who had the higher IRR in 2020. If one impact investor gave money to Acumen and another put money in a sustainable ETF in 2020, there would be no way to independently validate which investment had more impact by 2030. A number of companies that focus on environmental sustainability such as Tesla use CO2 offset as a proxy for social impact. Nevertheless, there is no method to compare a metric ton of CO2 saved to a job created or a life impacted. In fact, issues with the lithium ion battery supply chain make measuring impact even harder. One could argue the benefit to the environment from electric cars is negated by using children to mine the cobalt, a key ingredient in the batteries. Without an unbiased metric for impact, a cynic could say impact investing is a choice between Greta Thunberg or Goma (the capital of Eastern Congo) – the climate vs child labor.
While challenging, the lack of a universal metric for impact investing provides an opportunity for investors interested in sustainable investing. At a time when massive players such as Blackrock and Goldman Sachs are trying to differentiate themselves with pledges to sustainability and gender diversity, retail investors can chose what impact means to them and vote with their wallets. Will the vampire squid or Melinda Gates have a greater impact on gender equality in the next ten years? It’s hard to say since the two organizations are measuring success in different ways. But the lack of an impact benchmark makes investing in this sector so exciting! The market has an opportunity to decide how impact is measured. It seems to me there are a few ways this could play out:
- The major players in the industry, guided by a major organizational body such as the GIIN, review all existing metrics and decide on what the larger group thinks in the best one
- Investors decide to use the same metrics and pure finance to evaluate fund performance and look solely at the return profile when comparing funds to one another
- As the sector becomes more mature, investors will direct the majority of their capital to funds that in their opinion “perform” the best on impact, and the sector uses the impact measurement standard of the funds chosen by the market.
While all are viable solutions, I am personally hoping for option 3. Sustainable investing came from a group of people who thought we could do better allocating capital, so it would be good if the fund managers, entrepreneurs and investors all had a say in deciding what successful performance means.
About the Author

Isaac is the general manager for the Northwest and West Canada at Lime, the leading US smart mobility company. Before Lime, he worked for an emerging markets venture capital firm called Capria and for President Clinton’s Health Access Initiative. Isaac has an MBA from London Business School and a BS in Psychology with Honors from Brown University. He lives in Seattle with his wife and son.