Abstract

In 2021, Glenmede released the first impact annual report to investors on the Glenmede Global Growth Fund, a private equity vehicle launched in 2020. Glenmede raised $52.9 million for the Global Growth Fund, which invests across six sectors: sustainability, health, education, food, financial services and community development. We conducted impact measurement and reporting through the report showcasing impact achieved across each sector. Throughout our first iteration, we identified several nuances in implementing this in a multisector structure with numerous underlying managers. Here we share our journey, best practices, lessons learned and opportunities for development in the impact measurement and reporting space. We welcome opportunities for collaboration to advance impact measurement and reporting across the industry.

Key Findings

• Standardization of the methodology for impact measurement is evolving but remains a relatively nascent point of development.
• The impact measurement process comprises four phases: research, framework development, data collection and collation.
• A strong impact measurement framework should include standardized metrics for comparison and collation and consistency in methodology.

Landscape Analysis and Findings

Before embarking on our own data collection for the Global Growth Fund, we sought to understand the current impact measurement landscape in private markets. We identified groups developing impact measurement standards as well as recurring themes, best practices and challenges. Our process included:

• Participating in two industry working groups, the United Nations Sustainable Development Goals Impact and Global Impact Investing Network (GIIN).
• Conducting informational interviews with five industry-leading organizations on their frameworks and approaches to impact measurement and 10 impact measurement specialists.
• Reviewing 34 impact reports by private investment funds (private equity, venture capital, private debt) and 10 reports by public market funds.

While impact management and measurement have been difficult to standardize, we have identified key players whose frameworks have emerged at the forefront:

Rather than referencing a single framework, our research showed most firms combined several impact measurement frameworks, such as GIIN IRIS+ and the IMP’s 5 Dimensions of Impact, in addition to proprietary analysis from their internal environmental, social and governance (ESG)/impact teams. While almost all reports mapped impact to the SDGs, we found the SDGs were not fundamental to the data collection and impact goal-setting processes of most managers. Rather, they were used more often in impact reporting given broad public understanding of the goals.

While the industry has not adhered to a single framework and has shown a preference for more bespoke impact analyses, we found most investment firms take a multitiered impact reporting approach, regardless of framework. Included below are example metrics from the Glenmede Global Growth Fund’s 2020 Annual Impact Review.

Questions and Challenges

To define our data collection and impact measurement process, we found converting these impact measurement frameworks into action was a challenge. Many impact measurement frameworks provide theoretical maps to impact measurement but do not outline how to implement them.

As investors, our plan for implementation was clear:

STEP 1: Develop a questionnaire and send to our fund managers.

• What key performance indicators (KPIs), data points or metrics are relevant for each company? What KPIs constitute impact outputs versus outcomes?What KPIs can measure positive externalities versus negative externalities? While frameworks informed thinking through positive and negative externalities, they lacked specificity in guidance on data points to be measured.
• What time periods do we collect this data (quarterly, yearly or since inception), and how frequently?
• What units should we use per KPI? What are the standard units referenced in each thematic area we could conform to?

STEP 2: Gather the impact outputs and outcomes from our fund managers.

• How do we efficiently gather data from our fund managers?
• How do we gather data from traditional managers who are not producing impact reports, but whose investments are highly impactful?
• How do we try to get holistic pictures of impact for our portfolio companies? Given a lack of standardization, positive impact is reported but the negative attributes of portfolio companies are often overlooked. For instance, a solar company will tout the renewable energy generated but often not disclose environmental effects of the manufacturing process.

STEP 3: Assess and aggregate data across all funds.

• How do we aggregate impact data across portfolio companies and across fund managers? With a lack of standardization (e.g., across time periods, units and KPIs), aggregation is difficult, particularly for sector-specific impact metrics. Additionally, how do we aggregate KPIs across companies and avoid double-counting? For example, two portfolio companies focused on education may have overlapping end users. How do we count the overall number of end-users served without double-counting these users?
• What differentiates a strong impact investment from a weak one? At a surface level, any impact data looks strong. But how do you compare impact data across companies without adequate benchmarking? A lack of data and true standardization can limit true benchmarking.
• How do we aggregate negative externalities across portfolio companies and funds, particularly those more qualitative in nature (e.g., if a company’s supply chain negatively affects the air quality around a residential neighborhood, is it sufficient to say “x-number of communities affected by supply chain?” Does this quantitative metric sufficiently reflect the depth of the negative externality on each community? Can such negative externalities truly be quantitatively reported?

STEP 4: Gather the impact outputs and outcomes from our fund managers.

• Should we consider using a third-party impact audit or verification program for our fund?
• How should we report on the impact of our investment dollars as an investor into other private equity funds? Should we report on the overall impact of the funds we invested in (where each fund aggregates the impact of its portfolio companies), or do we take the proportion of our investments in the fund, apply this proportion to the impact data that we receive from each fund, and report on that data as the impact of our investment dollars?
• How do we aggregate impact across asset classes if we choose to issue a firmwide impact report that reflects our impact across both public and private market investments? Is aggregation even feasible?

With these questions in mind, we started contacting our fund managers to move into data collection.

Our approach to data collection, aggregation and reporting

For our data collection process, we ultimately committed to the methodology outlined below. For this first iteration, we opted to collect data based on standard operational business-related KPIs that portfolio companies were already measuring that also reflect these companies’ impact (e.g., the number of patients served by a healthcare company). Our goal is to engage our managers to work with portfolio companies to track additional impact-related KPIs in future years. Moreover, we tabled certain questions such as measuring negative externalities and benchmarking impact data until we can find strong resources and industry convergence around how to approach these practices.

STEP 1: Develop a questionnaire and send to our fund managers.

• Ultimately, we turned to GIIN’s IRIS+ as the impact measurement framework because we found that it had the highest level of specificity and clarity in terms of the types of KPIs we should measure and assess per sector.
• We chose to request data based on the reporting year (January 1, 2020 to December 31, 2020) as well as since the fund’s inception, since the fund may have been in existence prior to the Global Growth Fund’s launch. We collected data since inception for future reporting cycles, so we can analyze data on impact outputs and outcomes over time.
• We also asked specific managers to provide case studies on portfolio companies that we could use.

STEP 2: Gather the impact outputs and outcomes from our fund managers.

• When gathering impact data, many investment firms gather data points that portfolio companies would have on hand (i.e., standard business operational data) rather than ask them to measure and track new data. For instance, for an educational technology platform, the manager might ask the company to report on the number of students, given the company would gather this data as standard business practice. The investment firm would then report on this KPI as an impact metric to illustrate the number of students reached and benefited. High-level data points of this nature help to not overwhelm portfolio companies with additional data requests.
• Some data sets received from managers are incomplete if investments have been made recently and / or company has not begun tracking requested metrics (i.e., workforce diversity of underlying portfolio companies).

STEP 3: Assess and aggregate data across all funds.

• The industry largely coalesced around reporting on overall impact of the funds we invested in (with aggregation of underlying portfolio companies) versus taking a proportion of the impact data calculated by our portion of each fund and each funds’ ownership stake in specific companies. This approach focuses more on being a “piece of the overall pie” versus “this is our bite.” We adhered to the same philosophy for our report this year and will continue to monitor the industry for best practices.
• We could only aggregate impact across platform reach (i.e., students using specific education tech platforms could be aggregated), but we had limited ability to aggregate impact results (i.e., one platform scores students on a 100% scale, another marks completion).
• The lack of reporting around negative externalities permeates to a portfolio-wide level. A healthcare company focused on educating students may report on the number of students treated and an increase in attendance, but it likely would not report on the potential loss of jobs for specific school nurses that may bring down the overarching job creation metric for the portfolio. For true impact measurement, positive and negative externalities should be taken into effect so a true representation of net impact can be shown.
• Aggregation at the firmwide level will be bespoke. Our impact methodology for the private markets is vastly different from our impact methodology in the public markets.

STEP 4: Gather the impact outputs and outcomes from our fund managers.

• A third-party impact audit or verification program would be extremely expensive to undertake for the fund given the number of underlying fund and lack of dedicated impact reporting resources at each some of the underlying fund managers.
• In years to come, we hope to be able to disaggregate impact of our portfolio in any given year (i.e., number of jobs created in calendar year 2020) to the extent we are able to. Given how new the portfolio is and that it is the first time we are embarking on this process with our managers, we ran into challenges disaggregating 2020 impact versus inception to date impact.

Conclusion

The opportunities for development and standardization in impact measurement are abundant. We share our findings with you to explore collectively how to establish uniformity across each step of the impact measurement and reporting process. Based on our journey, we believe standardization is necessary not only in metrics but also in methodology.
This would allow for consistency in impact measurement and reporting across practitioners. This standardization can then allow for the ability to compare the impact performance of investment vehicles across the industry, which can spur practitioners to further improve our portfolios’ impact. Though areas of development remain in the impact measurement and reporting space, we remain optimistic these conversations are a natural part of the evolution process for the continued growth of sustainable and impact investing.