Measurement and the New Capital Movement

by Nathaniel Whittemore

categories: Impact Assessment and Measurement, Venture Capital

Published August 13, 2009 @ 08:05AM PT

Primarily profit seeking investors have a plethora of tools at their disposal designed to help them understand the opportunity and risk and success and failure of their investments. Yet for social investors - be they traditional philanthropists or the new group of socially-focused venture capitalist - the tools to understand the comparative opportunity of an enterprise in terms of each of the financial, social, and environmental bottom lines have been woefully lacking. That's about to change.

At this year's Social Capital Markets conference, a new rating system called the Global Impact Investing Rating System (GIIRS) will be unveiled. The system is designed to make it easier for investors with an impulse to use their capital for good understand the comparative advantages and opportunities of any social enterprise.

In a post explaining the new system and announcing it's unveiling, SoCap09 convener Kevin Jones uses the example of an investor who wants to create jobs in the developing world as part of their social impact to explain the system. "A job on a fair trade farm, for example, may only be seasonal, compared to a job in the city. But on the other hand, that rural job can help hold a rural community together rather than forcing wage earners to move to unsanitary and unhealthy slums in a major city."

The idea is that GIIRS gives an investor the power to think about these options in complex terms, and the goal is for the system to be pretty comprehensive, with investors being able to compare similar terms in fields as diverse as microfinance, health care, literacy...basically anything you see on Change.org.

I've been working out of the office where SoCap09 is being planned for the last couple weeks, and there's something palpable about the excitement around this initiative. Because while what has previously made news in the social entrepreneurship space is new grant awards and innovative new organizations, the implications of this system are much larger.

I believe that the tide is shifting dramatically towards a new moment in which people are looking to integrate their values across all of their interactions with the world, including investments. This movement is particularly strong among young people, where the Genie of doing good has been let out of the bottle, and is not going back any time soon.

If the GIIRS system is successful, it would be one of the most important infrastructural shifts in social enterprise to date. That said, there are of course significant challenges.

It's a tool that has come from the collaborative work of some of the best and most active minds of the space, but it still relies on a common taxonomy of terms that have tended more often to be debated than agreed upon. There will be kinks to be worked out as people get comfortable with a common language.

What's more, the recent conversations surrounding the Tactical Philanthropy blog about investing in high-performing vs. high-impact nonprofits demonstrates that when it comes to how an investor or philanthropist makes decisions about social and environmental impact, there is huge room for subjective assessment. We still have a long way to go before we have systems of measurement fully equipped to handle the huge array of human impact we're looking to achieve.

But this tool also comes at an amazing time. In some ways, I look at it and see an initiative which has a few years to work out the kinks before my generation has the sort of income where impact investing actually becomes a major part of how we contribute to the world.

To learn more about the initiative, check out Kevin Jones' post about it on the Social Capital Markets blog, or visit the Global Impact Investing Network website.

Photo: Leonardo da Vinci's Vitrvuvian man, an example of the Renaissance interest in better discovering and measuring the human body and the world in which it existed.