Sparking Impact Investing through GIIRS

In January 2011, the GIIRS team set out on a world tour to meet with the investees of the initial 25 GIIRS Pioneer Funds. Our team met with entrepreneurs in places as diverse as Mexico, India, and Kenya in industries ranging from microfinance to agriculture to consumer products to test whether GIIRS was a relevant tool to measure impact globally. We returned from the world tour with a wealth of feedback and officially launched GIIRS Ratings & Analytics in the Fall of 2011 at the Clinton Global Initiative.

GIIRS (pronounced “gears,” stands for Global Impact Investing Rating System) is a comprehensive and transparent system for assessing the social and environmental impact of developed and emerging market companies and funds with a ratings and analytics approach analogous to Morningstar investment rankings and Capital IQ financial analytics. It seeks to spark the impact investment industry by providing a tool that is intended to change investor behavior and unlock sidelined investment capital through comparable and verified social and environmental performance data on high impact funds and companies seeking investment capital. GIIRS Ratings & Analytics allows entrepreneurs, companies, and fund managers to better serve their customers, workers, and communities by raising capital from mission-aligned investors based on the social and environmental impact of their underlying businesses or portfolio companies.

Since the world tour a year ago, adoption of GIIRS has continued to increase. There are now 66 funds that have committed to getting rated, and more than 300 rated companies and 21 investors that have stated an investment preference for GIIRS-rated funds and will use GIIRS Analytics to manage and benchmark their impact investing portfolios against a broad universe of impact data. In addition, a number of accelerators such as Agora and Village Capital, Social Stock Exchanges such as Mission Markets, NeXii, the Social Stock Exchange, and BRiiX have signed on as GIIRS Partners—in many cases making GIIRS a requirement for participation, impact reporting and listing.

The Role of Impact Reporting and Ratings

For impact investing to achieve credibility as an asset class, investors need a reliable way to compare investment opportunities and measure the performance of their portfolio over time. To meet this need, GIIRS has built a rigorous assessment process for both companies and funds. Data is self-reported by companies and reviewed by a third-party verification service provider, Deloitte & Touche, before a company can receive a rating.

Fund ratings include a weighted average of underlying portfolio companies as well as an assessment of the fund managers themselves. A GIIRS Company Rating includes an overall rating and impact area (Governance, Workers, Community, Environment) ratings, as well as detailed judgments about a company’s Social or Environmental Business Model (“SEM”), key performance indicators (KPIs) specific to the industry in which the company operates, and benchmarking based on the company’s geography, size, and mission.

Over the past year, our team has continued to refine our understanding of the needs of companies, funds, and investors with regard to impact ratings and reporting. As a result, our team believes the following about impact investing and the role that ratings can play:

• Ratings are important: Ratings are an important tool not only to grow the sector and bring new capital into the space, but also as a mechanism to create comparable data.
• Ratings are feasible: As evidenced by the 300+ companies that have completed the GIIRS ratings process in the past year, it is possible, with the proper support and tools, to collect detailed social and environmental data even from companies in remote areas.
• Ratings process can serve as a roadmap for impact improvement: Companies that have completed the ratings process appreciate that the ratings tool also serves as a mechanism to identify areas for impact improvement and provides tools to help implement these changes.
• To make GIIRS ratings more useful, investors need education and support to incorporate GIIRS into their due diligence and reporting processes.

Since the world tour, we have received continuous feedback from the pioneer funds and companies on how to improve the ratings process. As a result of this feedback we have:

• Made the ratings process administratively easier to complete.
• Made the assessment easier to complete by introducing translated versions of the assessment and making the assessment shorter by reducing the number of required metrics. The assessment has now been translated into Spanish, Portuguese, Chinese, Russian, and Vietnamese. In additional, 20 other language translations are available using Google Translate.
• Introduced new tools to help companies and funds to improve their impact. These tools include 30 new best practices guides that cover topics ranging from Best Practices on How to Design Products to Address Poverty (Emerging Markets) to How to choose a Health Plan (Developed Markets). Rated companies are now also able to see a customized report that allows them to see which points they have already earned and which points are remaining to allow them to prioritize which practices to implement.
• Introduced new tools to make it easier for funds and investors to incorporate the GIIRS Assessment into their due diligence process.

In the coming year, we will launch Version 4 (V4) of our company assessment and a new product called GIIRS Analytics. As part of Version 4 we will introduce a new track of the assessment for larger companies, refine our socially and environmentally focused business models, incorporate additionally industry-focused metrics and standards for investors with a gender lens and further reduce the length of the assessment.

GIIRS Analytics is a powerful new platform that provides investors with tools to conduct detailed benchmarking, impact reporting analysis, and then report out to stakeholders. GIIRS Analytics provides a logical extension of GIIRS Impact Ratings by making collected data and KPI information available to the investment community for due diligence, advanced reporting, and benchmarking.

It’s been an important first year for GIIRS. Although at times we have been humbled by the enormity of the task of creating a comprehensive system to measure and evaluate impact, we recognize that our first year is just one of many in building tools that fully meet the needs of the impact investing marketplace. We owe a debt of gratitude to all of the pioneer funds, companies, and investors for their time and leadership in helping create GIIRS, and we continue to be inspired by all of the entrepreneurs that are creating innovative solutions to solve some of the world’s most challenging social and environmental problems.

Read more stories by Beth Richardson.