ABOUT
Measuring your impact
Impact returns is an sustainable finance advisory firm.
Our focus is to develop methodologies to measure and quantify the environmental and social outcomes of sustainable projects and activities, such as the ones financed by green and social bonds and loans.
Companies, governments and financial institutions are already aware of the financial returns of a project. We help them know their impact returns.
Mission
Quantifying social and environmental impact to enable optimisation.
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Standardise and democratise the calculation of impact metrics for sustainable projects.
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Create comparable metrics that enables optimisation of impact, social and environmental, with open and transparent methodologies.
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Cost-efficient impact calculations, leveraging automation for quick turnaround.
Impact definition
What we mean by impact.
The concept of “impact” varies across organisations and markets and may be interpreted differently depending on the context. For the purposes of this methodology, Impact Return adopts a widely recognised definition consistent with academic and market frameworks, distinguishing output metrics from impact metrics:
· Output – Refers to the delivery of a societally beneficial good or service, such as healthcare provision or low-carbon energy generation.
· Impact – Refers to the additionality of the output compared to a counterfactual scenario. For example, healthcare provided that was previously unavailable, thereby improving health outcomes in the target population or low-carbon energy that displaces higher-emission alternatives, thereby reducing greenhouse gas emissions.
While output metrics indicate that a beneficial activity has taken place, they do not demonstrate whether a change in the status quo has occurred. Impact metrics, on the other hand, aim to estimate that change by assessing what difference the activity made compared to what would have happened otherwise.
Basic methodology
Standardised, transparent, and consistent with market practices
The calculation methodology developed by Impact Returns for quantifying and measuring the impact associated with various categories (use of proceeds in fixed income terminology). These categories and impact metrics align with those applied in the market for Green, Social, and Sustainability Bonds, as defined by the International Capital Market Association (ICMA) and ICMA's Harmonised Framework for Impact Reporting respectively.
Impact Returns methodologies are grounded in a common analytical framework based on the definition of a Project and a Baseline:
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The Project represents the estimation of what did occur as a result of the investment.
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The Baseline represents what would have occurred in the absence of the investment.
The impact is therefore defined as the difference between the observed (Project) outcome and the counterfactual (Baseline) scenario. Basically, a mathematical estimate for what would have happened regardless.
For green impact, particularly greenhouse gas emission avoidance, the methodologies applied are well established in the market. While variations in data sources and approaches exist, this framework adheres to the most widely accepted and commonly recommended practices.
In contrast, social impact measurement remains a developing field, with fewer standardised methodologies and impact metrics. Accordingly, some of the approaches presented here are innovative adaptations of existing models from other domains, including academic and applied research, to ensure their suitability for impact measurement.
For most social categories, the initial metric used is to measure the social impact in monetary term, such as the savings accrued from Affordable Housing or the increase in lifetime income from Education.
Advanced methodology
Measure, compare, optimise.
In the basic methodology we measure impact in 3 different ways, GHG avoidance, monetised impact and health impact. This means that with categories sharing those measurements, a portfolio can be compared and therefore optimised, such as picking projects that maximises climate impact.
The next step though, to compare the impact of all types of projects, social and environmental, have long been a challenge. The solution developed by Impact Returns, is to find the lowest common denominator of impact, namely health. Consider that the ultimate problem is with societal and environmental problems such as climate change, pollution and poverty is that it ultimately causes harm to people in different ways, which is what makes them problems in the first place.
The current state of social and environmental impact metrics can be described as a world without currency exchange rates, with no way of comparing the profitability investments in different countries. With impact measured in health, this problem is solved.
The way the methodology quantifies the health impact of financing healthcare projects in terms of Disability-Adjusted Life Years (or DALYs) averted. A DALY represents one year of healthy life lost partially due to illness or completely due to premature death; therefore, averting DALYs corresponds to extending or improving life expectancy.
DALYs are a widely used standard measure in global health economics and cost-effectiveness analysis. They enable the comparison of health outcomes across interventions and countries. This methodology is hence a novel use of an existing metrics.
To do the estimates, academic studies that statistically evaluates the effect issues ranging from poverty to climate change has on mortality and life expectancy. Most of the time simplified without disability adjustments as plain Life Years (or LYs).
Once the health impact for all type of projects is estimated, they can be compared and portfolios can be optimised not only by profit and risk as is traditional, but also by impact.