How do you measure “investor impact”?
– A guide identifies six different mechanisms of investor impact, assigning a level of evidence that indicates how certain we can be that it actually works.
– There is no scientific consensus yet on the effectiveness of the six mechanisms based on systematic reviews of the empirical evidence.
I’ve recently blogged about the notion that all investing should have some element of “impacting investing” in it if we’re going to really do something to combat climate change. That raises the important issue of “well, how do you measure whether an investment has an impact?”
Based on our research, we identify six different mechanisms of investor impact, aligned with the Impact Management Project classification. To each mechanism, we assign a level of evidence that indicates how certain we can be that it actually works:
𝐀: 𝐒𝐜𝐢𝐞𝐧𝐭𝐢𝐟𝐢𝐜 𝐜𝐨𝐧𝐬𝐞𝐧𝐬𝐮𝐬
Systematic reviews of the empirical evidence document a scientific consensus on the effectiveness of the mechanism.
𝐁: 𝐄𝐦𝐩𝐢𝐫𝐢𝐜𝐚𝐥 𝐞𝐯𝐢𝐝𝐞𝐧𝐜𝐞
Empirical studies show that the mechanism has been effective in specific settings. Yet, it remains unclear how far these findings can be generalized.
𝐂: 𝐌𝐨𝐝𝐞𝐥-𝐛𝐚𝐬𝐞𝐝 𝐩𝐫𝐞𝐝𝐢𝐜𝐭𝐢𝐨𝐧
Economic models predict that the mechanism should be effective under certain assumptions.
There are narratives that rationalize why the mechanism could be effective.
What stands out: Currently, 𝘸𝘦 𝘥𝘰 𝘯𝘰𝘵 𝘨𝘦𝘵 𝘢 𝘓𝘦𝘷𝘦𝘭 𝘈 𝘧𝘰𝘳 𝘢𝘯𝘺 𝘰𝘧 𝘵𝘩𝘦 𝘮𝘦𝘤𝘩𝘢𝘯𝘪𝘴𝘮𝘴. So still much work ahead.