Bring a healthy dose of scepticism to understand impact of your investments - five challenges of impact reporting

Apr 25 2023 · 15 minute read


Impact measurement is central to impact investing, and yet confusion reigns over what impact measurement really is and how to report it. According to the widespread Global Impact Investing Network (GIIN) definition, impact measurement is a core characteristic of impact investing, as distinct from ESG. And so, as the impact investment market continues to expand, we see more innovation and variety in how funds measure and report their impact.

The numbers above all relate to the impact of Snowball’s portfolio. We only invest in what we believe to be best-in-class impact funds and are proud of their impact. But when we present the key performance indicators above, we’d encourage investors to ask us: are they the right KPIs? how are they calculated? Is the data reliable, relevant and usable? This article will shed light on these questions by looking at the five biggest challenges around good impact reporting.

Before diving into the detail, it’s thinking about why impact measurement and reporting is so important[2]. It isn’t so we can pat ourselves on the back as investors, but instead, a crucial step to enable effective impact management and improve outcomes. It also facilitates the allocation of resources to ensure investors get a good “bang for their buck”, optimising across impact, risk and return.

1. Attribution

It is commonplace to see claims that a portfolio contributes to a specific impact, often without explaining how the data has been compiled. For example, in many impact reports, it is unclear if the quantum of impact has been weighted by the size of a manager’s holding in a company. Without clear, consistent and transparent reporting around attribution, it is challenging for investors to differentiate those strategies delivering the most impact.

Looking at the KPI above of the renewable energy generated across Snowball’s portfolio, we multiply the clean energy generated by the proportion of Snowball’s holding (as is the case for all the KPIs above). This provides a more reliable ownership-weighted impact per $M of portfolio value. Were we to overclaim the entire amount of renewable energy generated by our investments (as many investors do), the reported figure would increase by over 80,000x to 788 million MWh. A more impressive number, no doubt, but highly misleading.

Language is important. We often hear claims that an investment has created a specific impact or saved an amount of greenhouse gas emissions. This requires scrutiny of the level of additionality: the extent to which positive outcomes are driven by engagement or deployment of capital. There is much debate on the impact of listed equities which we won’t revisit here (WHEB set out the arguments well in this paper), but where shares are traded on the secondary market, reporting should be clear that the investor’s capital has not directly caused the impact. WHEB itself reports with integrity and is careful not to overclaim, noting in its impact report the positive impact associated with owning £1m of their investment strategy.

This is one reason a key focus of Snowball’s strategy is private markets, where not only do we expect higher financial returns, but our capital is more additional as it flows more directly into the creation and growth of new assets and businesses.

2. Outputs to impact

It’s easy to get lost in the weeds in the jargon of outputs, outcomes and impact, but the distinction is important. Outputs are usually easiest to measure but do not give a clear sense of impact on people and planet, leading to sub-optimal decision-making.

Snowball has partnered with Net Purpose to help us understand the outcomes and impact of listed companies[3] within our portfolio. We believe Net Purpose is a market leader in converting outputs to outcomes and impact, doing so with integrity using the latest research and providing transparency into the assumptions and methodologies used.

Take PT Bank Rakyat Indonesia, an Indonesian bank serving micro, small & medium enterprises (MSMEs). MSMEs play a key role in strengthening many economies and account for almost half of formal employment, but lack of access to finance is a significant constraint. The International Finance Corporation (IFC) estimates the potential demand for MSME finance is $8.9 trillion, 2.4x the credit currently supplied to the market.

Bank Rakyat’s main reported outputs are the number of loans disbursed and the number of customers. Outcomes are the annual number of MSME customers provided new access to financial services, the resultant revenue potential enabled and the number of jobs supported indirectly by these loans, the latter of which Net Purpose estimates using a study by the IFC. Impact includes changes to the quality of life of end customers, as well as societal benefits through new goods and services, increased employment, and multiplier effects on the economy.

But a blind eye cannot be turned to negative impacts. For example, Bank Rakyat has also co-financed a $400M loan to Adaro Energy, an Indonesian coal miner. The net impact, therefore, needs to be considered, with meaningful engagement essential to drive better practices.

Without an understanding of outcomes and impact, capital can go into investments which have impressive-seeming output metrics but are not making a dent in long-term poverty, or worse still, are leading to outcomes like debt spirals or have aggressive debt collection practices.

3. Credible Baseline

Impact is never a single number in isolation but instead represents change achieved over time against a credible baseline. Most impact reporting does not provide details on the assumptions used to calculate the KPIs quoted.

Within our portfolio, we think Circularity Capital, which invests in circular economy companies, is best in class. Portfolio company Grover provides flexible rental of consumer electronics, and its primary impact is to reduce the number of virgin-manufactured products. Circularity has worked together with Grover and an external assurance provider to design a methodology for evaluating the number of “virgin units avoided”. The calculation considers the asset type, number of use cycles and asset longevity and compares this to a ‘business as usual’ baseline to calculate greenhouse gas emissions avoided.

The underlying assumptions are crucial, and it is prudent to take a conservative approach. Grover’s reported avoided emissions are significantly lower than those of a competitor with a similar business model. This is not because the companies have a materially different impact, but instead, because the assumptions driving the reported metrics are different – the competitor assumes that all old mobile phones would otherwise end up in landfill, whereas Grover takes a more nuanced approach recognising that a proportion of assets are sold into the second market, given to family or friends or donated to charity. Grover’s approach to impact measurement plays a key role in driving their success, as impact and financial returns have acted in lockstep, helping them establish impact unicorn status.

4. Aggregation

We have always been cautious about aggregating KPIs across our diverse portfolio. It is particularly hard to do so for social metrics.

We reported above that Snowball’s social housing investments housed 68 people in 2021 (the pro rata number attributable to Snowball). “Individuals housed” is an easily understood term, but aggregating across the portfolio can lose the nuance of the social impact created. For example, across our portfolio, the impact of an individual living long-term in conventional affordable housing is different from someone homeless and in crisis placed in short-term accommodation with access to specialised support services. As investors, we should be asking: what do we learn and lose by aggregating impact KPIs? How does this improve decision-making and lead to better outcomes?

Nonetheless, there are times when standardising companies’ impact and comparing relative performance can help determine how best to allocate capital. And progress is being made. The GIIN has recently launched a series of impact performance benchmarks[4] to enable investors to compare the impact of their investments, although these are currently output based. Again, we think Net Purpose is leading the way here by enabling comparison of standardised outcomes.

For example, looking at the impact of healthcare companies across our listed equities, Net Purpose utilises research and clinical studies, as well as regulatory body guidance (e.g. Food and Drug Administration and European Medicines Agency) and disease burden databases, to estimate the outcomes associated with a company's high-impact products and services from outputs such as the annual doses provided, tests enabled and hospital admissions. These outcome metrics, which take into account the efficacy of treatment and the severity of the disease, provide a standardised, additional and comparable dataset of metrics such as lives extended, hospital visits avoided and sick days avoided, which investors can use to optimise for impact in pursuit of Sustainable Development Goal 3 (Good Health and Well-being).

Of course, the reliability of such estimates depends on the quality and completeness of the data available. Although disclosure is improving year-on-year, gaps remain rife. For example, across the listed equity portion of our portfolio, only 74% report Scope 1 & 2 emissions, and 57% report Scope 3 emissions. We support our managers to engage with the laggards to drive improvement.

5. Double-counting

It seems straightforward to attribute the clean energy generated by a wind farm to its operator. But what impact should be allocated to Vestas, which manufactures the wind turbines? Or to GEV Wind Power which maintains and repairs them? These “impact enablers” all contribute to the decarbonization impact of the wind farms, but there is a risk of double counting impact.

There is an emerging consensus that the total impact should be attributed to different partners along the value chain. However, guidance is sometimes contradictory, provides little direction on how this should be managed in practice, and partners often do not agree on a consistent attribution approach. Consequently, the risk of double-counting persists – and so we encourage investors to challenge impact reporting and push for transparency.

And there remains a lack of clarity about attributing impact across the capital structure. Equity investors typically calculate impact based on their percentage ownership of a company’s equity. But what about capital provided as debt? We have seen some propose that impact should instead be allocated using a company’s enterprise value, but the sector is yet to coalesce around best practice. This means debt and equity investors frequently take the approach which maximises their own reported impact, which then aggregates to over 100%.


Measuring and reporting impact with integrity is hard. Presently, there is a risk is that asset managers with the slickest marketing and most positive-sounding claims attract capital – contributing to risks of greenwashing – but there are things investors can do to avoid this.

We believe progress is underpinned by transparency and accountability. We encourage managers to conduct verifications of their impact practices, ideally by impact specialists such as The Good Economy and BlueMark – and we challenge others to publish the full findings as Snowball has done.

Asset managers should disclose their methodologies and assumptions and should be open about the challenges faced and shortcomings in the data. This provides accountability not only to investors but also end stakeholders, and ultimately improves outcomes. We should not let the perfect be the enemy of the good and embrace the challenge ahead to get better over time.

If you would like to discuss any of the topics with us, then please get in touch.

Jake Levy,

[1] 988 tonnes of greenhouse emissions avoided across public equity portfolio - This relates to Snowball’s listed equities which comprise 24% of Snowball’s portfolio. Source: Net Purpose

[2] This article focuses on impact KPIs, but impact takes many other forms, from engagement to technical assistance programmes.

[3] Net Purpose currently only covers listed equities. Snowball works directly with its private market managers to ensure they are reporting outcomes and impact (and using this information for impact management), rather than simply outputs data.

[4] The GIIN has so far published two benchmarks: (i) financial inclusion (2022); and (ii) agriculture (2023).

About Snowball:

Snowball is an ambitious investment manager setting the standards now for tomorrow's markets. We manage a diversified fund demonstrating a better way to invest – one that delivers competitive returns whilst being thoughtful stewards of people and nature alongside the capital we’re entrusted with. We’re purpose-built from the ground up to achieve our goals. All our structures and processes help serious investors use their money to shape a better world profitably. Snowball offers access to comprehensive opportunities that use capital to add value rather than extract it. Why? When you consider the future, common sense says this is the right way to invest.

About Net Purpose:

Making impact measurement effortless for investors.

Net Purpose have built the highest-quality sustainability dataset in the market, powered by a unique AI-assisted human-in-the-loop process. With the same fidelity as financial data, investors can build a leading approach to impact measurement and have high conviction in the impact of their investments.

Jake Levy, Investment Manager, Snowball
Jake Levy, Investment Manager, Snowball