Through our Impact Investing program, Clean Yield aims to use the power of private investing to strengthen local economies, promote resilience and social justice, and support sustainable agriculture, renewable energy, and conservation. Since the beginning, we have tracked the financial return of these investments and have been intimately familiar with the positive impact these investments create—”intimately,” as in when we invest in a farm, we don our boots and milk the goat—but found ourselves in recent years wondering how we might better track that impact over time.
Earlier this year, Clean Yield conducted a review of the impact reporting of the approximately two dozen different Clean Yield impact investments. This portfolio includes direct investments (in local Vermont companies), funds (primarily high-impact private investment funds), and investments in Community Development Financial Institutions (CDFIs). Not surprisingly, the funds we reviewed offered the most-detailed impact reporting, while the direct investments tended to have limited reporting. These companies either reported on a few indicators specific to the core business or provided no impact reporting at all.
As a result, we are asking our investees to report back on some basic social impact questions, as well as getting their help on finding the right metrics. We are mindful of the tension between our desire for data and the burden that can place on entrepreneurs, so we aim to adhere to Isaac Newton’s view that “truth is ever to be found in simplicity, and not in the multiplicity and confusion of things.”[i]
To that end, we asked investees to set goals and report annually (if they do not do so already) on at least five indicators that measure outputs and outcomes relevant to their organizations or funds. Specifically, we wanted investees to report on number of employees (quality jobs created) and dollars spent locally, which can include food, inputs, and/or services. Then we asked that they report on one or more indicators in the area of environment, employees, and society/community (see text box for more details). Due to the nature of our investments in businesses dependent on working lands, we also sought information on how climate change may impact their businesses. Finally, we wanted to hear about specific social and/or environmental challenges faced by investees and details as to how they plan to address those challenges – warts and all! We hope that through this type of self-reflection, we can identify broader long-term impacts associated with investments, as well as encourage these mission-driven companies to consider how they may have even more impact.
As a B Corp, we at Clean Yield have seen the value in frameworks that help companies think through all of their social and environmental impacts. However, we also appreciate how demanding the process of B Corp certification is. We don’t expect these small but growing businesses to take the B Corp certification plunge now, but we hope that by asking them to report on a few key metrics, they will begin to embed strong environmental and social practices as the business grows. Perhaps one day, they may become B Corp too!
Impact investing is playing an increasingly important role in capital markets and at Clean Yield. Currently, about one-third of Clean Yield clients have one or more impact investments, for a total of $16.6 million, or just over 4% of assets under management. The channeling of capital to strategies that do not lend themselves to market-rate returns but achieve high impact acts as a key bridge between philanthropy and market-rate capital. To achieve success in impact investing, we must strike the right balance between financial and impact returns, ensuring that one does not impede the other but that they maintain a symbiotic relationship. We will continue to work with our clients and investees to help them achieve both their financial and impact goals, and we look forward to reporting back on the measurable impact reported by our investees over time.