Chris Addy, Maya Chorengel, Mariah Collins, and Michael Etzel
An evidence-based way to estimate social and environmental returns.
Impact investing—directing capital to ventures that are expected to yield social and environmental benefits as well as profits—provides investors with a way to “do well by doing good.” But whereas the business world has tools for estimating a potential investment’s financial yield, it lacks them for estimating social rewards in dollar terms. Now the Rise Fund and the Bridgespan Group have developed what they call the impact multiple of money (IMM) to demonstrate the value of putting impact underwriting on the same footing as financial underwriting. In this article they explain their six-step process for calculating it: (1) Assess the relevance and scale of a potential product, service, or project. (2) Identify target social or environmental outcomes. (3) Estimate the economic value of those outcomes to society. (4) Adjust for risks. (5) Estimate terminal value. (6) Calculate the social return on every dollar spent. The IMM, they write, “offers a rigorous methodology to advance the art of allocating capital to achieve social benefit.”
Despite the increased attention and capital incentives around corporate sustainability, the development of sustainability reporting standards and monitoring systems has been progressing at a slow pace. As a result, companies have misaligned incentives to deliberately or selectively communicate information not matched with actual environmental impacts or make largely unsubstantiated promises around future ambitions. These incidents are broadly called “greenwashing,” but there is no clear consensus on its definition and taxonomy. We pay particular attention to the threat of greenwashing concerning carbon emission reductions by coining a new term, “carbonwashing.” Since carbon mitigation is the universal goal, the corporate carbon performance data supply chain is relatively more advanced than that of the entire sustainability data landscape. Nonetheless, the threat of carbonwashing persists, even far more severe than general greenwashing due to the financial values attached to corporate carbon performance. This paper contextualizes sustainable finance-related carbonwashing via an outline of the communication as well as the measurement, reporting, and verification (MRV) of carbon emission mitigation performance. Moreover, it proposes several actionable policy recommendations on how industry stakeholders and government regulators can reduce carbonwashing risks.
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