A bridge is about to open up that will make things easier but safer for people who want make their investments consistent with their values. Just like a bridge makes traveling between two islands easier, the new rating system to be unveiled at Socap09 will be like taking a train instead of having to paddle through choppy waters.
The bridge, called GIIRS, is being built for people who are trying to make sure their investments have a positive social and environmental impact while they also try to earn a financial return. It's a tool that makes it easier, safer and clearer for those investors who want to make a difference.
GIIRS (for Global Impact Investing Rating System) is not for everybody; the vast majority of investors are still only about making money, so this tool will likely have no interest for them, except as a curiosity. Not everybody understands the new kind of investing for impact, and some people have more trouble understanding it than others. Investors who are still loyal to traditional Wall Street finance- first, financial return without active concern about environmental or social impact, seem to find this new way of thinking most troubling.
For a surprisingly large and fast growing cadre of large investors, GIIRS is almost like an answer to prayer or at least the answer to a heart felt wish. As it evolves and grows more sophisticated, GIIRS will them know their money is really making the kind of difference they want.
The GIIRS rating system will be explained on Sept 2. at the Social Capital Markets conference in San Francisco. It is expected to open the way for the already clearly identified pent up demand of high net worth investors, family offices and institutional wealth managers. It will let these new- style investors compare and measure the kind of social and environmental impact they can expect from their investments and donations. GIIRS will be a bridge that should accelerate the flow of capital to good.
Built on a deep collaboration and extensive work by major players including leading foundations, social investment funds, rating agencies and consultants, GIIRS will let investors who want to make a difference by, say, creating jobs and businesses in the developing world, compare the different kinds of jobs that various social enterprises have created.
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.
Using GIIRS, a funder can make the same kind of comparison in areas from health care, to slum upgrading, agriculture development, literacy and education or virtually any cause.
Before GIIRS, an investor or donor would not have been able to make that kind of comparison. GIIRS will allow investors to make a sound, rational decision on comparative impact; putting their money in line with what matters to them.
GIIRS was put together by leading foundations, social investment funds, accountancies, ratings agencies and consultancies, led by Rockefeller Foundation, and including Kellogg Foundation, Acumen Fund, Root Capital, B Lab, JP Morgan Chase Foundation, Monitor Institute, Delloit and Imprint, among others.
The tools that underlie GIIRS are the same kind of interlocking gear-like mechanisms that enable other markets to function. One of the key elements is IRIS, (Impact Investment Reporting Standards).
It is a taxonomy and translation tool that manages to create an agreement on terms and definitions in this messy, poorly defined emerging market. When you are measuring something like impact, the real difference you make in people's lives or to the planet, that's not a simple task.
For years, people have battled over terms and competing definitions have seemed set in stone. But due to a change in investor mindset that is perhaps augmented by the downturn, there are now clear signals of demand by large investors for a new and more efficient and easier way for them to make a bigger positive difference in the world through their investments. So barriers that seemed to be set in stone are, it seems, actually written on gold when new money comes into the room ready to make an impact now.
These new investors have money and they want to make a difference and know that they made a difference, just like they used to be able to judge whether they were only thinking about making money with their investments. GIIRS is a tool for a new kind of thinking by investors, and that may actually be its biggest long-term impact, as it shatters older and outmoded cultural myths around money.
GIIRS may not be the tool for everyone; it's creators were surprised to find that many foundations seem satisfied with the relatively narrow definitions around their particular theory of change (the way they want to make a difference; e.g. wealth creation equals jobs and houses but not health care) and did not welcome a tool that would put their impact into a larger context or encourage a more systemic and holistic approach.
So, while traditional foundations may be late in getting on the bandwagon, large family offices and several investment banks and institutional wealth managers and a few leading foundations say they are ready to commit big dollars to ride the train across the GIIRS' bridge in order to accelerate the flow of capital to good.
The GIIRS tool is ready and has been in trials for a while. In fact, if things come together the way it looks like it could, a couple of those large institutional investments could be announced at Socap09. That's what we're hoping for.