Amit Bouri
How Standards Emerge
The Role of Investor Leadership
in Realizing the Potential of IRIS
The primary users of general purpose financial reporting are present and
potential investors, lenders and other creditors, who use that information
to make decisions about buying, selling or holding equity or debt instru-
ments and providing or settling loans or other forms of credit.
The primary users need information about the resources of the entity not
only to assess an entity’s prospects for future net cash inflows but also
how effectively and efficiently management has discharged their respon-
sibilities to use the entity’s existing resources.
—Summaries of the International Financial Reporting Standards
Conceptual Framework for Financial Reporting 2010
Standardized accounting practices and financial reporting have evolved in tandem
with the investment industry, and are now universally accepted and used. Aujourd'hui,
the International Financial Reporting Standards (IFRS) guide reporting and aid
interpretation of a business’s financial position, and it is both de facto and, dans
much of the world, de jure that a business will regularly report standardized finan-
cial statements in order to function in a market.
How do such standards emerge? Can a common reporting framework be cred-
ibly developed and accepted over a few decades, rather than over millennia? After
tous, the IFRS have yet to be adopted in the United States, which instead uses the
generally accepted accounting principles (US GAAP), a reporting standard that
Amit Bouri is the Director of Strategy and Development at the Global Impact
Investing Network (GIIN), a nonprofit organization dedicated to increasing the scale
and effectiveness of impact investing around the world. The GIIN was launched at the
2009 Clinton Global Initiative annual meeting, and has been recognized by The
Economist for its work supporting for-profit social and environmental solutions. Mr.
Bouri’s work in impact investing began when he was a strategy consultant with the
Monitor Institute, where he was part of the team that produced the “Investing for
Social & Environmental Impact” report (2009) and supported the business planning
for the GIIN and several of its initiatives.
© 2011 Amit Bouri
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fulfills the same purpose. These are key questions for the impact investing indus-
try, as efforts to develop and adopt a standardized set of social and environmental
performance indicators begin to gain traction. For impact investing, uptake and
widespread adoption of a credible, independent, common set of standards is crit-
ical for social and environmental impact to be realized and far-reaching, Et ainsi
for the industry to flourish.
The Impact Reporting and Investment Standards (IRIS) are designed to meet
this need by providing an independent and credible set of performance indicators
that any investor, intermediary, or enterprise can use to measure, track, and report
an organization’s social, environmental, and financial performance.2 A diverse
group of early impact investors, including traditional financial institutions, grand-
scale foundations, and specialized impact investment funds, called for these stan-
dards to provide a foundation for market infrastructure that can facilitate the effi-
cient flow of capital to mission-driven enterprises.
The Global Impact Investing Network (GIIN), a not-for-profit organization
dedicated to increasing the scale and effectiveness of the impact investing industry,
is leading the effort to develop and promote IRIS, which the Rockefeller
Fondation, Acumen Fund, and B Lab initiated in 2009. Within the past two years,
IRIS has gained traction in the impact investing industry, with hundreds of enter-
prises reporting to their stakeholders using IRIS indicators.
In addition to its relevance to individual investors and organizations, IRIS is a
tool for industry development. Like a telephone system or an online social net-
travail, IRIS increases in utility with each new user, because a larger number of IRIS
adopters results in positive network externalities for the industry as a whole.3 For
exemple, the widespread use of IRIS increases an individual adopter’s ability to
compare organizational performance in various sectors.
Cependant, for these network effects to be realized, a critical mass of early
adopters must first find IRIS’s value proposition compelling at an individual level.
That is, initial adopters must determine that IRIS has intrinsic utility, such as
streamlining impact reporting processes, assisting in stakeholder decision-making,
or signaling a credible commitment to social or environmental impact. A critical
mass can be reached only after these early adopters demonstrate the utility of IRIS,
at which point it can become the de facto standard for the impact investing indus-
try. As the industry coalesces around standardization, additional network external-
ities can be realized.
Network effects can result directly in the form of IRIS-based aggregate market
intelligence, and indirectly by enhancing and supporting industry infrastructure.
These indirect effects are already evident in the form of initiatives and networks
that utilize IRIS, like the Global Impact Investing Reporting Standards (GIIRS), le
online performance management system Pulse, and the impact investing angel
network Toniic, lequel, together with other initiatives, is building an industry
ecosystem. In the future, this ecosystem may expand to include impact investing
professionals and scholars who can further refine, analyze, and apply IRIS data.
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How Standards Emerge
One of the early adopters that is helping to build this ecosystem is the KL
Felicitas Foundation. The foundation’s IRIS adoption experience will be described
later in this piece to explain in practice why its founders, Charly and Lisa Kleissner,
chose to adopt IRIS to track their foundation’s performance, to describe the extent
of the value they have found in using it, and to detail the challenges and unantici-
pated opportunities that resulted from its implementation. The Kleissners created
their family foundation to make early-stage investments in social enterprises that
they believe have the potential to scale. For the Kleissners, the importance of cred-
ible, standardized metrics is central to tracking their portfolio, benchmarking
social and environmental performance, increasing market intelligence, and help-
ing to attract more impact investors to social enterprises. The Kleissners’ public
support of the IRIS initiative among investor peers and social entrepreneurs, along
with their current IRIS implementation, are the result of thoughtful consideration
about the impact they seek to achieve through their investment portfolio.
Following the case study is a discussion of the potential for IRIS to become increas-
ingly valuable through its widespread adoption and a supportive industry ecosys-
thème.
A NEED FOR STANDARDS:
A BRIEF HISTORY OF IMPACT INVESTING AND IRIS
The IRIS initiative was formed to address the needs of the impact investing indus-
try, including fragmented impact measurement approaches, lack of performance
comparability among organizations and portfolios, and an absence of sector analy-
ses, such as performance benchmarking. The industry’s evolution continues to
blur the traditional financing binary in which nonprofit philanthropy and govern-
ment aid address global problems through grants, and mainstream investors max-
imize financial profits only. The roots of the emerging impact investing industry
trace back to principles similar to those behind corporate responsibility, socially
responsible investing, and venture philanthropy. Some investors have been practic-
ing impact investing for many years, but the movement to develop these concepts
into an industry is relatively new. It is in this industry-building phase that investors
have increasingly recognized the need for rigorous, standardized measures. Le
proliferation of activity has made evident the inefficiencies and constraints that
result from the lack of both a common language to describe impact, and basic
market intelligence such as performance benchmarks.
A Diverse Industry
In any market, limited usage of standardized metrics and business performance
reporting is a formidable barrier to the effective and efficient allocation of
ressources. In a market in which the beneficial outcomes from products and servic-
es are subjectively interpreted, these barriers are even more significant.4 In addition
to subjectivity around outcomes, the unique diversity within the impact investing
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industry makes the emergence of a common set of performance standards partic-
ularly desirable for the following reasons.
D'abord, mission-driven enterprises are diverse and work across many sectors and
contexts while employing a variety of strategies to make an impact. Malgré cela
diversity, mission-driven enterprises need an effective and consistent way to artic-
ulate their social and environmental performance in order to establish credibility,
enable peer comparisons, and effectively raise funds among the growing set of
investors seeking social and environmental returns alongside financial profits.
Deuxième, impact investors are diverse. They include large foundations, tradi-
tional financial institutions, high net worth individuals, and government agencies.
Although many impact investors work at traditional grant-making or financial
institutions, their roles are distinct from those of philanthropists, who do not
demand or expect financial returns from grantees, and from traditional investors,
who demand and expect profit maximization. The varied approaches to manage-
ment and evaluation throughout these fields have led to fragmentation in impact
investment performance measurement and reporting.
Troisième, impact investors are diverse in their approach to achieving impact.
Impact investors may use their capital to focus on specific geographic regions, sec-
tors, desired impact, or targeted financial returns. Their investee organizations
focus on many social and environmental issues around the world, y compris
affordable housing, health care, éducation, and alternative energy. Investors may
fund social good as a complement to aid or charity, or may incorporate social fac-
tors into traditional investing to complement a portfolio that already includes
socially responsible investments. Investors’ financial return expectations range
from a return of principal capital to market-beating profits. En effet, impact invest-
ments are a result of investors’ management of their investments toward the cre-
ation of specific social or environmental benefits along with financial returns.
Managing these multiple factors requires a credible, consistent, and rigorous set of
metrics that includes social, environmental, and financial performance indicators.
Ainsi, diversity, while a source of industry strength and potential, underscores
the challenge and need for an effective way to communicate social and environ-
mental performance.
The Intrinsic Stakeholder Benefits and Industry Network Effects of IRIS
The IRIS initiative encompasses three main components: (1) developing and refin-
ing the IRIS standards (voir la figure 1); (2) promoting adoption of these standards;
et (3) encouraging voluntary contribution of anonymous IRIS data to establish
an expansive evidence base of the industry’s social, environmental, and financial
performance. These data will help ensure fair and transparent communication
among stakeholders about impact targets while driving market intelligence about
performance expectations for enterprises.
Investors can voluntarily choose to anonymously and securely report data to
the IRIS initiative by working through its data collection partners—currently the
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How Standards Emerge
Chiffre 1. IRIS Standards
Aspen Network of Development Entrepreneurs (ANDE), the Microfinance
Information Exchange (MIX), and Pulse (a technology platform). Through these
partnerships, the IRIS initiative is able to aggregate data from diverse sources,
which can then be used to generate market intelligence that helps inform the entire
industry.
The initiative is focused increasingly on adoption of IRIS standards in order to
build momentum toward a continually growing user base that will increase the
standards’ value to the industry. Part of the IRIS value proposition is its versatility
and ability to meet the needs of various industry stakeholders.
Fund managers and other direct investors. Direct investors can credibly track
and report the social and environmental performance of their portfolio companies
by using IRIS. IRIS can be used independently or through GIIRS, a partner impact
performance ratings system, to allow investors to compare the performance of an
individual organization with industry benchmarks and with other organizations
across the industry that have also adopted IRIS.
Investors in funds. Investors in funds can apply IRIS as a credible set of stan-
dards across multiple sectors and geographies to serve as the basis for impact
reporting by a diverse portfolio of funds.
Member organizations/intermediaries. Member organizations, such as IRIS
partner ANDE, can use IRIS to build shared sector-specific reporting frameworks
to assess their individual member and aggregate impacts.
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Mission-driven enterprises. Enterprises raising capital can better articulate
their value to impact investors by measuring and reporting both financial and
nonfinancial performance. IRIS provides an objective set of performance indica-
tors that are compatible with many existing reporting methodologies, like that of
the Social Return on Investment Framework, so that IRIS’s alignment is straight-
forward and low cost.6
Developed as a free public good, IRIS can be used to support existing report-
ing frameworks. Like a dictionary, the IRIS reporting language provides clear and
consistent definitions for terms commonly used to describe social, environmental,
and financial performance, but it does not recommend which of these perform-
ance indicators should be used by mission-driven organizations or investors.
Plutôt, IRIS provides a universal standard for performance indicators that can
meet the needs of the diverse impact investing community. IRIS can be incorpo-
rated into impact reporting products and ratings systems, enabling enterprises to
choose the indicators that are most meaningful and contextually relevant to their
specific mission and goals. Once indicators are chosen, investors can begin to
measure performance consistently throughout their portfolios. IRIS can then facil-
itate fair comparisons and aggregation of standardized performance data to com-
plement conclusions extrapolated from anecdotes and information from propri-
etary reporting systems. Finalement, IRIS initiative seeks to enable more informed
allocations of resources across the impact investing industry.
CASE STUDY: KL FELICITAS FOUNDATION
The social or environmental results of these investments, ostensibly an
integral part of these enterprises, are much more difficult to compare,
assuming data is available at all.
—KL Felicitas Foundation, Avril 2011
The mission of the KL Felicitas Foundation is to enable social entrepreneurs and
enterprises worldwide to develop and grow sustainably, with an emphasis on rural
communities and families. The KL Felicitas impact investing strategy works to
match the entrepreneurial spirit and business discipline of social enterprise with
the significant capital being made available through a growing network of impact
investors. IRIS offers the foundation rigorous, standardized metrics that provide a
consistent way to measure social and environmental performance. The Kleissners
are using IRIS to measure how impactful a small family foundation can be through
its use of varied philanthropic tools and strategies. The Kleissners believe that the
foundation’s point of greatest leverage is in early-stage enterprises: if KL Felicitas
makes an early-stage investment and helps prove a concept, that investment could
catalyze further investment from larger investors and thus help that investee gain
scale. The foundation’s commitment to using IRIS is intended to set an example of
best practice that will encourage more adopters, particularly impact investors who
seek this kind of standardized, comparable data.
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How Standards Emerge
Chiffre 2. KL Felicitas Foundation Reporting Components
KL Felicitas began thinking of how to apply IRIS across its investment portfo-
lio in 2009 and is currently using it as a key evaluation tool both for current invest-
ments and to identify new grants and investments. The foundation’s strong under-
standing of its own theory of change and long-term goals was a necessary prereq-
uisite for its adoption of IRIS. The Kleissners devoted time and energy to deter-
mine IRIS indicators that were both reflective of their impact goals and informa-
tive for decision-making, which was crucial to ensure that the chosen measure-
ments were relevant to both them and their portfolio enterprises.
The IRIS Adoption Process: Choosing the Right Indicators
To develop an appropriate set of IRIS indicators that reflected the intended out-
comes of the foundation’s work, KL Felicitas relied heavily on the mission, vision,
and the key foundation goals articulated by the Kleissners. In early 2010, KL
Felicitas formed a reporting framework that provides a thorough and multifaceted
analysis of the progress and success of its impact investing portfolio. This frame-
work consists of: (1) a set of core IRIS indicators applied across its portfolio, sup-
plemented by (2) sector-specific IRIS indicators, applied wherever appropriate,
et (3) a set of foundation-specific qualitative indicators (see Figure 2). KL
Felicitas’s first complete set of IRIS data will be collected from selected investees for
the year ending 2010, and will serve as a baseline for future monitoring and eval-
situation.
Because comparability was a key goal for the Kleissners, they first determined
the common set of core IRIS indicators to be applied across the portfolio. Given
the foundation’s goal of helping social enterprises scale social impact and its self-
defined niche of early-stage investments, the foundation needed only a small set of
indicators. Used as proxies, which would relay information about the growth and
expansion of each investee. Its core indicators focus on product impact and finan-
cial performance (see Table 1). These core IRIS indicators are now a formal part of
the investment evaluation rubric that the foundation uses in its due diligence
processus.
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Tableau 1. KL Felicitas Foundation’s Core IRIS Indicators
Because their portfolio also included “clusters” of investments within specific
sectors, the Kleissners chose sector-specific IRIS performance indicators for these
investments. These indicators are clustered in two groups: health, energy, et
eau; and land conservation and restoration (see Table 2).
To render a more holistic understanding of the impact of the foundation’s
investments, KL Felicitas also tracks very specific, and occasionally anecdotal, qual-
itative indicators from investees (see Table 3). Used in tandem with IRIS indicators,
these indicators may help clarify some of the different forces at play that contribute
to an investment’s success or failure. Over the near term, around five years, le
foundation plans to compare IRIS data with these qualitative indicators to deter-
mine if there is any correlation or causal relationship between the two. This three-
pronged reporting framework will hopefully illustrate if and how KL Felicitas’
investment helped an organization gain greater scale and social impact.
Investee Buy-In
KL Felicitas has many investments in funds, but it is also a direct investor in a num-
ber of social enterprises. The foundation is now engaged in discussions with each
investee about its own use of IRIS as a reporting and monitoring tool, and is
encouraging them to migrate to an IRIS-based system to measure the outputs of
their work wherever possible.
As enterprises self-report IRIS data, entrepreneur buy-in is important for
accurate and complete data collection and reporting. En effet, for an investor like
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How Standards Emerge
Tableau 2. KL Felicitas’s Sector-Specific IRIS Indicators
Tableau 3. KL Felicitas Qualitative Indicators
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KL Felicitas, engaging investees makes reporting relevant for the organization’s
own impact measurement, thereby incentivizing completeness and accuracy. Ce
engagement also helps the foundation achieve one of the IRIS initiative’s goals for
the industry—to reduce enterprises’ reporting burden—by seeking to streamline
the many reporting obligations of entrepreneurs with multiple funders.
To facilitate a smooth transition from existing reporting methods to IRIS,
investee organizations must buy in to IRIS benefits. Rather than take a top-down
approach by requiring investees to migrate to IRIS, KL Felicitas expresses three key
benefits that may result from aligning impact indicators with the IRIS standards:
• Investees can differentiate themselves from other, similar enterprises by using a
standardized language that removes the ambiguity of impact reporting. Par
using IRIS, any impact investor can immediately understand what an enter-
prise’s outputs are, and how those outputs combine to render outcomes over
temps.
• Interpreted within a broad context, IRIS indicators help investors ascertain the
value of an enterprise’s outputs. Because IRIS defines outputs in certain specific
termes, investors can calculate the unit cost of one output for any enterprise and
across enterprises. In this way, enterprises can highlight a comparative advan-
tage through cost efficiencies, greater economies of scale, or otherwise.
• IRIS occasionally provides an opportunity for an enterprise to significantly
enhance its impact reporting. In KL Felicitas’s experience, social enterprises
often do not have the technical capacity or the financial resources to adequately
measure impact, let alone develop the output indicators that most closely relate
to the enterprises’ intended outcomes. IRIS provides an elegant, easy-to-under-
stand, and predefined set of impact indicators that an enterprise can adopt
quickly and use readily.
For some enterprises in the KL Felicitas portfolio, IRIS migration appears to
simplify impact reporting by reducing the number of indicators that are being
tracked, or by requiring reporting only for indicators that closely relate to the orga-
nization’s mission and strategic business goals. Once collected, KL Felicitas plans
to share its portfolio IRIS data publicly, unless any investee objects, on the founda-
tion’s website, www.klfelicitasfoundation.org. The first data should be posted in
the fourth quarter of 2011.
Next Steps
The KL Felicitas Foundation uses IRIS to more fully understand and illustrate the
sociale, environmental, and financial impacts of its impact investing portfolio. Il
will also use IRIS indicators to evaluate additional investments and provide need-
ed performance data to a growing community of impact investors. In the short
term, the foundation intends to use its data as a comparison tool to help assess rel-
ative performance across investments. In the longer term, the foundation plans to
compare trends within individual investments to determine if an investee is indeed
expanding and scaling, and if so, at what rate. By contributing to a more definitive
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How Standards Emerge
knowledge base of specific impact investment accomplishments, the Kleissners
believe more resources can be channeled to social enterprises, with the desired out-
come of increased social and environmental impact.
Some key components of the foundation’s work moving forward are:
• Share IRIS output indicators with current investees and encourage reporting
alignment wherever possible, helping investees to understand how IRIS can
benefit them
• Collect a baseline of data from 2010 to serve as a benchmark for future internal
monitoring and evaluation, using the data as a reference point to reveal trends
over three to five years, and to evaluate similar investments
• Unless investees request otherwise, transparently share data externally on the
foundation’s website and among investor networks
• Continue long-term analysis and identify possible correlations between selected
IRIS indicators and the foundation’s qualitative indicators
LEVERAGING INVESTOR BEST PRACTICES
INTO INDUSTRY-WIDE BENEFITS
Impact investors like the Kleissners, who have invested time in the adoption of
IRIS, are helping build the infrastructure for future social performance measure-
ment. The realized value of IRIS for early adopters such as KL Felicitas is central to
spurring broader network effects for the industry. As in the experience of KL
Felicitas, initial IRIS adoption may require up-front time for planning and imple-
mentation, as stakeholders select indicators and adopt them as a common lan-
guage. Cependant, many IRIS adopters have reported benefits to internal investment
management and to investees. Par exemple, technical assistance providers have
noted that enterprises often find cost savings and strategic advantages when they
begin the measurement process.
Direct investors may be intimidated by the time required to engage social
enterprise investees in conversation about their selected IRIS indicators. Cependant,
failing to do so could hinder entrepreneur buy-in and data quality. While KL
Felicitas expressed the IRIS value proposition in terms of credibility, output value
measurement, and enhanced social reporting, other investors may identify differ-
ent benefits for their investees, such as decreased reporting time if multiple stake-
holders agree to a set of IRIS indicators, or the potential to attract additional cap-
ital through a credible, data-driven approach to articulating their performance.
IRIS indicators are most beneficial when they accurately reflect organizations’
business models and stated impact goals.
IRIS is gaining traction in its early stages as an industry standard. Such stan-
dards require that industry stakeholders all along the value chain find it useful and
adopt it widely. The IRIS initiative’s ambitious goals rely on early adopters like KL
Felicitas to demonstrate to their peers that IRIS has intrinsic value, and that its
value can increase with a wider network.
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IRIS Performance Data Report: Initial Market Analysis and Intelligence
The IRIS initiative’s initial traction has been demonstrated with the release of the
first IRIS performance data report, which is available for download at
www.iris.thegiin.org. The report is a significant milestone for the IRIS initiative, comme
it includes the first-ever analyses of aggregated performance data from a diverse set
of organizations receiving and seeking impact investment capital. Performance
data on more than 460 mission-driven businesses were submitted by six impact
investment funds—Acumen Fund, E+Co, Grassroots Business Fund, IGNIA, Root
Capital, and the Small Enterprise Assistance Funds—and technical assistance
provider New Ventures. While IRIS data submission is voluntary, anonymous, et
secure, these seven impact investment intermediaries elected to show their leader-
ship to build support for the IRIS initiative by openly acknowledging their contri-
butions.
Although it marks significant progress for the impact investing industry, le
report does not reflect the IRIS initiative’s full potential. The initial IRIS dataset
represents only a fraction of the growing industry, and thus can reveal only limit-
ed findings and insights. The ultimate ability of this initiative to benefit the indus-
try depends on the emergence of de facto standards. In the future, data sent for
analysis to the IRIS initiative can help the impact investing community make bet-
ter informed decisions, and lead to more efficient and effective use of impact
investment capital.
Opportunities: The Role of Networks
Sharing and collaboration among investors can lead to co-investment deals that
help social enterprises succeed and achieve long-term impact. In addition,
investors can learn from case studies on impact investing, as profiled in this jour-
nal, and from the enterprises in their portfolios to improve impact measurement
and reporting.
Recognizing the diversity of impact investors, the GIIN is working to foster an
environment in which different types of funders can learn from each other. Le
GIIN Investors’ Council is one such collaboration platform intended to bring
together large-scale impact investors from around the globe. Par exemple, impact
investors at traditional finance institutions and development-focused organiza-
tions are beginning to share information to increase support for the social and
environmental performance of their investees. In a new industry that merges
sociale, environmental, and financial interests, this type of collaboration will ulti-
mately benefit both investors and the mission-driven businesses they support. IRIS
can help facilitate these partnerships by coordinating and standardizing previous-
ly proprietor-specific measurements.
Many investors are going beyond information-sharing and are beginning to
form sector or impact-specific partnerships that benefit both investors and enter-
prises. In these partnerships, impact investors like KL Felicitas are willing to adjust
expectations on financial returns in portions of their portfolio in order to achieve
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How Standards Emerge
a greater impact. They take subordinated positions within impact investment deals
in order to attract larger sums of co-investment capital from financially oriented
investors. These hybrid deals are often unconventional, but they can help social
entrepreneurs succeed by blending business knowledge and development expert-
ise to support the enterprise with more capital and well-aligned impact expecta-
tion.
In addition to investment partnerships, networks of investors are beginning to
organize around specific impact objectives. Par exemple, the Kleissners formed a
network of angel impact investors who aim to provide relatively small amounts of
capital to very early-stage mission-driven enterprises. This network, called Toniic,
is beginning to determine a set of core IRIS indicators, which its members will
apply to the first 24 deals made by the group. Toniic aggregates capital through its
membership network, helps create a pipeline of deals for impact investors looking
for opportunities in more mature companies, and provides exit opportunities,
which are often difficult to find for investors operating in isolation.
There is a need for industry associations like Toniic to help define which of the
IRIS indicators are most relevant for specific sectors. Par exemple, the MIX, le
world’s leading provider of microfinance data, has worked to ensure that the IRIS
financial services performance indicators are aligned with the MIX taxonomy. Dans
addition, ANDE, a global network of organizations helping to propel entrepre-
neurship in small and growing businesses in the developing world, is working with
its members to determine which IRIS indicators are most relevant for measuring
the success of mission-driven small and growing businesses.
Need for Supporting Industry Infrastructure
IRIS also provides a foundation for additional market infrastructure, such as
GIIRS, which is operated by B Lab, a nonprofit organization whose mission is to
create a new sector of the economy that harnesses the power of business to solve
social and environmental problems. Leveraging relevant IRIS definitions for com-
monly reported performance metrics, GIIRS has developed a survey that provides
social enterprises and impact investment funds with an impact rating, similar to
Morningstar or Moody’s in the mainstream financial markets. Both IRIS and
GIIRS reduce the reporting burden for social enterprises that are funded by mul-
tiple investors. The IRIS tool simplifies the process of measuring what matters to
key stakeholders. Whereas IRIS users previously may have created unique per-
formance indicators for every portfolio company, users now have a library of
industry standards that are continuously being vetted and used by investors and
other expert stakeholders in the industry. IRIS users have noted that adopting IRIS
has prepared them for getting GIIRS ratings and streamlined both processes,
because the GIIRS survey uses many IRIS definitions in its questions about social
and environmental performance.
In addition to products and tools that build on IRIS, there is a need to educate
the next generation of professionals to gain experience with impact standards and
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ratings. Demand for trained experts in social reporting will increase as IRIS adop-
tion and impact investing grow. Similar to what has happened in the mainstream
financial accounting field, the professionalization of the impact accounting and
analysis practice could grow to include environmental and social performance
auditors trained to audit IRIS performance statements. This expertise would add
credibility to impact reporting statements and ensure that the information includ-
ed is accurate and complete.
There is also a significant opportunity for additional case studies and action-
based research on impact investing. Lessons from IRIS data-collection processes in
the field, challenges of adoption, examples of additional customization of report-
ing frameworks, and future analysis of aggregated performance data will further
enhance the effectiveness of this industry. These also will provide ample opportu-
nity to explore IRIS network effects and observe how a critical mass can create a de
facto acceptance of the IRIS reporting standards.
CONCLUSION
Unlike the traditional investment industry’s ecosystem of accepted reporting stan-
dards, measurement professionals, academics, and an expansive evidence base of
financial performance, the impact investing ecosystem is still young, though rap-
idly evolving. At this point, it is uncertain which, if any, industry standards will
emerge within the next few decades, and there will be more challenges as the num-
ber of stakeholders grows. Cependant, early IRIS adopters like KL Felicitas have
found IRIS useful internally, and they have found that it can benefit stakeholders
throughout the impact investment value chain. Whether there are enough poten-
tial IRIS users to create the critical mass necessary to build a full ecosystem of tools
and market intelligence depends on early adopters’ willingness to share their expe-
riences with IRIS and contribute to aggregated performance analyses. En effet, le
early industry value of IRIS adoption is realized not only through leading
investors’ demonstration of its utility, but also through the data and best practices
they share to advance collective learning.
The network effects of widespread adoption of IRIS will increase the value
proposition of IRIS to investors, social enterprises, and the industry as a whole. Comme
stakeholders begin to coalesce around a set of standards and then track and make
decisions based on these data, supporting linkages such as industry networks and
organizations are needed to advance market intelligence and provide credible,
standardized, and useful information. There is great potential for this industry to
open a vast new pool of capital for the innovative enterprises working to address
the world’s most pressing social and environmental problems. Meeting this task
will require a collective commitment across the industry to build an ecosystem that
includes impact measurement systems, platforms for learning and collaboration,
and mechanisms to increase the efficiency of social and environmental perform-
ance management so that effective enterprises receive the capital they need to scale
their impact.
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How Standards Emerge
Remerciements
The author thanks Charly Kleissner, Lisa Kleissner, Melody Meyer, Will Morgan,
and Min Pease for their substantial contributions to this essay.
1. Summaries of the IFRS Conceptual Framework for Financial Reporting 2010, published by
Deloitte. Available at http://www.iasplus.com/standard/framewk.htm.
2. “Intermediary” refers to funds or technical assistance providers that work with a group of organ-
izations. Data was collected directly from organizations by intermediaries, which in turn shared
data with the IRIS initiative for analyses. “Organization” refers to profitable commercial enterpris-
es whose products and services generate positive environmental and social results—especially
those in emerging economies.
3. See Michael Katz and Carl Shapiro, “Network Externalities, Competition and
Compatibility,” American Economic Review 75, Non. 3 (1985); and Jeffrey Rohlfs, “A Theory of
Interdependent Demand for a Communications Service,” The Bell Journal of Economics and
Management Science 5, Non. 1 (1974): 16-37.
4. “Outcomes” are changes or shifts in behaviors or social paradigms that are levers for impact.
Definition adapted from the Catalog of Approaches to Impact Measurement: Assessing Social
Impact in Private Ventures, Rockefeller Impact Investing Collaborative, 2008.
5. “Impact Investments: An Emerging Asset Class,” J. P.. Morgan Global Research, 2010.
6. A white paper detailing the use of IRIS in conjunction with the SROI method is available at
http://iris.thegiin.org/materials/iris-and-social-return-investment.
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