As the impact investing field draws increasing attention, we are grateful to Paul Brest and Kelly Born for their thoughtful analysis of the market and its potential for growth. Although impact investors vary in the ways they measure impact and in their return expectations, they share an intention to achieve positive social or environmental impact through their investments. This intention, more than additionality, is crucial not only in defining impact investing but also in developing the market.

Although mission-driven enterprises may have the opportunity to raise capital from conventional investors, or what the authors call “socially neutral investors,” the investors’ intention is a potential advantage. In particular, investors with aligned intentions reinforce the social or environmental mission of the enterprise, making nonmonetary impact a measure of its success. Beyond supplying capital, investors also sometimes play important roles through their service on an investee’s board or through the process of exiting an investment. In both cases, the intention to achieve social impact and stay on mission is critical.

In seeking the defining elements of the impact investment market, we may consider evidence of additionality, but additionality is not a pragmatic threshold for determining whether an investor is an impact investor, especially given the volume and diversity of impact investments, nor is it easily scalable or comparable. Practically speaking, how would one expect a lender to sustainable farms and cooperatives—whether in rural Kenya or the English countryside—to consistently assess what would have happened to the borrower if not for each of its loans? Demonstrating additionality for every impact investment is often impractical; at the very least, managing and standardizing the measurement of additionality is costly, difficult, and time-consuming.

Requiring additionality as a defining criterion also inherently marginalizes the impact investment market, implying that it will never be robust with competing investors vying for good deals and bringing with them all the benefits of a healthy investment market. With multiple investors who might be able to make a given investment, the counterfactual to one investor closing a deal may then be that another impact investor makes the investment instead. This would be intrinsic to a well-functioning market, which is necessary to have scale and to provide competitive pricing and liquidity for investors and investees.

Essential for the credibility of impact investing is a de facto expectation of impact measurement to demonstrate intent and hold investors and enterprises accountable to stated social and environmental goals. The intangibility and seeming subjectivity of intent can make it, by itself, unsatisfactory as a definitional criterion. Therefore, a focus on performance data should inform the discussion of impact and intent. To this end, many leading impact investors have begun to use IRIS, a catalog of generally accepted performance metrics, to measure social, environmental, and financial success. IRIS includes metrics for both operations and products, making it an invaluable resource to clearly define social impact goals, track performance, and differentiate impact investors from socially neutral investors.

As the practice of impact measurement evolves, we see increasing evidence of its use by active impact investors. In a survey of 99 impact investors published earlier this year by the Global Impact Investing Network (GIIN) and J. P. Morgan, Perspectives on Progress, 98 percent of respondents reported that standardized impact metrics are at least somewhat important for industry development, 96 percent of respondents measure their social and environmental performance, and 52 percent align their metrics with IRIS. Working with members and partners, the GIIN will develop and champion the practice of impact measurement as an essential demonstration of intention to create positive impact, and as the means by which investors can identify, capitalize, and help scale up the best solutions to social and environmental problems.

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