Since our recent re-launch under the Sansar Ventures brand, we have had a few questions from founders about what we mean by impact and what they need to measure. Since there are no globally accepted standards yet and because there are so many different approaches, this is indeed a perennial problem when it comes to impact investing. However, the landscape is rapidly evolving and over the past few years we are seeing lawmakers, globally, increasingly bringing in legislation into this arena. For us, our simple ask is that we seek founders and disrupters who can come up with ideas that have restorative value for the environment and or society and where appropriate, backed up by numbers.
In short, measuring and reporting impact still causes far too many challenges. Even as the world has moved on, this problem has not gone away and we see many founders who set themselves up to fail around this central and essential challenge. If you want to consider yourself as an impact investment you need to define and measure the actual social or environmental impact of whatever innovation it is you are hoping to bring to the market. Most importantly of all, we think the best outcome is where a founder or founding team have started to think about this on day one. Then you simply evolve it as your start-up evolves and tweak as appropriate along the way.
Be mindful some things are harder to measure than others, for example, demonstrating that <employees are now happier> is tricky but can be overcome if thought about correctly. It is a given that you will certainly need to be able to provide certain CO2 emission numbers such as your scope 1 and scope 2 Green House Gas numbers regardless of your industry. Most impact investors should be able to help you set up some ESG and Impact basic principles, if indeed they don’t already demand it on their term sheet.
Straying away from standardised metrics and methods for quantifying impact can be risky as your target audience (customers, investors, stakeholders) may not understand and thus may not invest nor your potential customers may not buy. There are so many good frameworks/standards etc out there, it really is as easy as picking one that is appropriate for you. As you grow these will change too!
Also, beware of “lies, damned lies and statistics”: as you grow it is very likely your topline totals will worsen. If you produce twice as much of a product in a year’s time, there will likely be an increase in environmental impact. This is actually fine as long as you can explain it, but nearly always you will find a metric that is more appropriate and so gives the correct picture. However, never ever greenwash – this will come back to bite you, both reputationally and financially.
Keep an eye on how much you spend on measuring too – at the early stages you really should not be spending too much on pricey consultants to tell you what you need to do (if you really must, a day or two should be more than enough). Taking a principled approach to this problem from the outset will save you time and money in the long run and your early investor base should anyway be able to help..
With new laws, such as the EU’s ESRS, the EU Taxonomy, starting to take effect, we will see standardisation emerge but in reality it will still take many years before everyone is on the same page. That said, we like what the IFRS is doing through its ISSB initiative and are watching developments closely. More than anything because it is far more straightforward than the EU’s lengthy and complex taxonomy.
Ultimately, investors and stakeholders alike will need clear and reliable data to assess whether the intended impact is being achieved or will be achievable at a point in time. With laws also tightening up around impact claims and how they are accounted for, there really is no avoiding this, so better to keep it simple and start early.