The Impact Investment Conundrum: Too Much Data, Not Enough Intelligence

Despite the dozens of standards, frameworks, questionnaires, surveys, and approaches, investors still don't have the information they need. Despite decades of disclosures and an ever-growing number of sustainability disclosures, standards, frameworks, surveys, and questionnaires (not to mention consultants), the investment community needs more. As Jean Case of the Case Foundation put it, "For impact investing to move from niche to mainstream, it needs a fully formed, robust ecosystem driven by transparent data". I couldn’t agree more - and I believe this is the single greatest barrier to successful impact investment.
 
That's not to say the data isn't there. Over the years there have been some admirable approaches to disclosures (those of you with acronymophobia may want to look away) such as Global Reporting Initiative (GRI) (a full disclosure of my own: I was once the CEO of the GRI), The Sustainability Accounting Standards Board (SASB), CDP, and many others. There are even more approaches to bringing these general guidelines into alignment with investors, often through principles-based approaches such as Principles for Responsible Investment (PRI), or consortium approaches such as the Global Impact Investing Network (GIIN). Today, more targeted efforts are underway, such as the Task Force on Climate Related Disclosures (TCFD) led by FSB, and attempts to integrate all of these efforts to increase corporate value (for companies and their investors), such as the IIRC and various efforts focused on the natural, social, and human capitals that support and advance business such as the Natural Capital Coalition (NCC) and work by the WBCSD. There are, of course, many more organizations chipping away at the business of disclosure - so why aren't investors able to get the information they need? Why do they feel (79% of them, according to PwC) that they aren't getting quality data?
 
Because there is too much data, and not enough intelligence in the market.  There are too many attempts at disclosure, too many standards, too many reports, too many questionnaires and surveys.  There are too many frameworks trying to carve out a new niche in disclosure when the real challenge is translating the data that already exists into meaningful information the market can use. I'm not talking about sustainability reports, or investor questionnaires or surveys. And I'm certainly not talking about impact criteria baked into investment documents or the limited and unlikely inclusion of sustainability criteria into market regulators or exchanges. Though all of these things are important efforts, we are ignoring the most important resource that we already have: data.
 
Arthur Conan Doyle once said, "It is a capital mistake to theorize before one has data". Yet that is what we do all the time - we decide on impact criteria (or policy, or business strategy) without the right set of information - often deciding on criteria before understanding if our portfolio companies even have the information we need, or have the capacity to get it for us (the Achilles heel of value chains). So we ask for more data, more information, more surveys, more reports. Yet a critical disconnect remains between what our portfolio companies produce, and what we want to know. That's why decades of disclosure has failed to close the information gap.
 
It's important to remember that data is largely worthless; it only becomes valuable when combined with other data - and it is here where we are failing. A sustainability report out of context of the rest of the organization's performance (e.g., financial) is of little value. Data on CO2 emissions without an analysis of risks and/or reduction/abatement costs is incomplete and inspires inaction. To know a fact is one thing, but to be able to take action one must have enough facts to work with. And our silo'd thinking on sustainability issues, we have all the facts, but not enough to make them relevant to investors.
 
Over the years,  I've been amazed at the sheer amount of corporate sustainability data out there, and even more amazed at how little we leverage it. We just produce more. As CEO of the Global Reporting Initiative, still the primary way this kind of data is created and communicated around the world, I felt that the standard setters had an obligation to promote transparency to inform and engage, rather than just report. But the industry continues to focus more on a physical report rather than liberating the information within to inform, and is too often only valuable to sustainability practitioners, consultants, and those we hire to help us to quantify and verify our facts, the accounting firms. What's missing from this group are the people who know how to combine information to give investors what we are asking for: not more information, but relevant information.
 
Through the lens of impact investment, we must start with the data, not our impact statements. We must first look to our portfolio, assess what information is available, what could be made available, and how it could be leveraged to inform our impact investment strategy. We must choose among a variety of standard disclosures to ensure we have a consolidated approach where data can be compared, analyzed, and - most importantly - integrated with other information to inform our decisions. The flow of information from our portfolios needs to be uniform, and it needs to inform. Choosing the right strategy based on the data available is a great place to start.  Only then can we design impact portfolios that work.