FINAL_OMJ_IRIS_Report

Using the Impact Reporting and Investment Standards (IRIS) to Track Social and Environmental Portfolio Performance across the Opportunities for the Majority Portfolio Opportunities for the Majority Inter-American Development Bank April 2012

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Using the Impact Reporting and Investment Standards (IRIS) to Track Social and Environmental Portfolio Performance across the Opportunities for the Majority Portfolio Opportunities for the Majority Inter-American Development Bank April 2012

IRIS and its Applicability to Grant-Making Organizations

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1. Introduction

The Opportunities for the Majority’s (OMJ) initiative within the Inter-American Development Bank (IDB) was created in 2007 with the objective of promoting and financing market-based, sustainable business models that benefit the base of the socioeconomic pyramid in Latin America and the Caribbean. With approximately 360 million people in the region living on less than 300 dollars per month in a market that remains largely untapped, OMJ believes that collaboration with the private sector can create shared value for businesses and communities.

Through its loans and partial credit guarantees, the initiative funds private sector solutions that foster economic and business growth and alleviate poverty.

Since its inception, OMJ has financed projects in various economic sectors that demonstrate that investments in underserved markets can be profitable and can generate business and social returns. To fulfill this mission, beyond issuing loans and credit guarantees, OMJ implements grants, or technical cooperation projects (TCs), in partnership with the private and public sectors to support its credit operations. These grant projects have become crucial products for advancing OMJ’s objectives. Through them, OMJ is able to: 1) Support loans and guarantees by funding activities that will enhance the structure of the credit projects and maximize their impact, including feasibility studies, market segmentation studies, and the identification of baseline and impact indicators.

2) Pilot new, pre-commercial initiatives that could mature into business-based solutions for low income markets and thus qualify for OMJ loans and guarantees.

3) Fund knowledge generation and dissemination activities that promote market-based, sustainable solutions for the base of the pyramid.

At the beginning of 2012, OMJ’s approved portfolio of technical cooperation projects stood at US$6.07 million dollars, with over 30 projects financed. With this sizeable portfolio, the organization began grappling with the challenge of tracking and measuring impacts that went beyond the firm’s balance sheet and income statements or basic outputs. The lack of standardized metrics to measure social and environmental performance was a concern and a topic of discussion for OMJ and has also been so among the broader community of impact investors, grant-making agencies, and mission-driven organizations. For this community of practitioners, failing to capture nonfinancial performance of projects erodes the value-added and core goals embedded in their mission. Therefore, the ability to effectively and credibly capture, track, report, and determine social and environmental impact is essential to their work.

As a step toward this goal of determining and reporting social performance in a comparable and credible way, OMJ chose to leverage the Impact Reporting and Investment Standards (IRIS) taxonomy—a list of highly standardized social and environmental metrics whose development is

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overseen by the Global Impact Investing Network (GIIN)1. OMJ believes that using these standardized metrics will allow the organization to better monitor and capture the social impact of both its grant and investment portfolio.

This report provides an overview of IRIS and the benefits of using these standards, as well as an in-depth explanation of how a specific set of IRIS metrics are being applied to OMJ’s grant portfolio. The report also contains an appendix with examples of IRIS metrics that could be used to measure contributions to the Inter-American Development Bank’s GCI-9 Priority Sectors2.

It is worth noting that OMJ’s adoption of IRIS falls in line with the IDB’s current efforts to improve existing monitoring and evaluation guidelines and to develop an indicator-based system that will allow Bank staff and donors to access real-time information for process management of grant projects. In an interview for the GIIN, IDB President Luis Alberto Moreno recently recognized the benefits of adopting IRIS: “OMJ has adopted GIIN's IRIS indicators for describing the social, environmental, and financial performance of target organizations. This makes it easier for impact investors to work with us as we have an independent and consistent set of definitions for performance reporting.”3 The adoption of IRIS by OMJ will thus further the Bank’s objective of improved transparency and reporting.

2. An Overview of IRIS The IRIS standards were created in 2008 by a group of leading impact investors, namely the Acumen Fund, B Lab, and the Rockefeller Foundation, who perceived a significant gap in consistency, transparency, and credibility in how funds define, track, and report the social and environmental performance of their capital. This lack of standardized metrics was in stark contrast to well-established financial performance indicators. To address this lack of clarity in metrics, IRIS was developed to provide a shared language for measuring social, environmental, and financial performance.

The process for the creation of IRIS indicators is transparently governed by an advisory body, which incorporates feedback from metrics and sector-specific expert working groups, as well as from user comments collected on an ongoing basis. Together with the IRIS team, this advisory committee also identifies priority areas for future standards development. This ensures that the IRIS language will evolve with guidance from expert advisors, input from the broader

1

GIIN is an industry group whose mission is to increase the scale and effectiveness of impact investing. Members of the GIIN’s Investor’s Council are large-scale active impact investors, including Athena Capital, Citi Foundation, Ford Foundation, Morgan Stanley, Omidyar Network, Packard Foundation, UBS, and many others. For more information visit http://www.thegiin.org 2 Refers to the ninth round of increase in resources of the IDB. The General Capital Increase (GCI) was formalized in 2010 with the objective of not only increasing the financial capacity of the IDB, but also of creating a new Institutional Strategy and an agenda to improve efficiency, transparency and governance at the Bank. The strategy put forth gives proper attention to the overarching Bank objectives of reducing poverty and inequality, and fostering sustainable growth, as well as to providing preferential support to the less developed countries in the region and to promoting development through the private sector.

3 “Investor Spotlight: Inter-American Development Bank Group”. Global Impact Investing Network. Retrieved from http://www.thegiin.org/cgi-bin/iowa/investing/ spotlight/376.html

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community, and in line with industry best practices. The resulting library of IRIS indicators can be utilized to construct reports similar to traditional financial reports, but with additional information on social and environmental performance.

Much of the IRIS metrics library can be applied across sectors and geographies. The IRIS metrics and are organized into five main categories4: a) Organization description standards focus on the organization’s mission, operational model, and location. b) Product description standards describe an organization’s products, services, and target client base. c) Financial performance metrics include financial performance indicators that are consistent with both the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). d) Operational Impact standards describe an organization’s policies, employees, and environmental performance. e) Product Impact metrics include descriptions and measures of the social and environmental benefits of an organization’s products and services.

In addition to cross-sector indicators, the IRIS library contains sector-specific indicators that have been developed in conjunction with industry experts (also see “IRIS and User-Generated Metrics: An In-Depth Look” section of the report). Below is a list of sectors for which IRIS has developed specific performance indicators:

Agriculture

Education

Energy

Environment

Financial Services

Health

Housing

Water

In sectors where there are no commonly accepted performance indicators, the IRIS initiative works with industry experts to develop new ones. IRIS does so through the previously mentioned working groups, always opening the formulation of indicators to public comment and review. As a result of these processes, updated versions of IRIS are published periodically with the latest metric definitions and standards.

Similarly, the Inter-American Development Bank and OMJ are collaborating with the IRIS initiative, and advising on the development of new indicators that fulfill the needs of organizations working to create social impact through investments and grants. It is important to note that OMJ is one of the first organizations to formally apply the IRIS metrics to a grant

4

“IRIS Standards”, Impact Reporting & Investment Standards. http:// iris.thegiin.org/iris-standards

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portfolio, thus strategically positioning OMJ to give valuable feedback on the adoption of these indicators across both grant-making and investment portfolios.

Since 2009, IRIS has been managed and promoted by the GIIN and has been adopted by numerous funds and organizations, such as the Acumen Fund, the Rockefeller Foundation, ACCIÓN International, UBS, Sarona Asset Management, and Root Capital, among others, as the basis for their impact assessment efforts.

3. The Benefits of Using IRIS The decision to adopt IRIS by OMJ was guided by several benefits offered through IRIS use, including: •

Facilitates the identification of progress and performance indicators through an independently-managed library of indicators and their accompanying definitions.

•

Enables funders to track progress of projects more objectively through quantitative and qualitative indicators.

•

Allows for the gathering of data on individual projects across sectors and geographies and for the aggregations of statistics to report on results and performance to internal and external stakeholders.

•

Enables comparison of results across projects with similar interventions through the use of standardized metrics.

•

Allows organizations to benchmark performance relative to other investments that have adopted IRIS through the published IRIS data report.5

•

Helps set social, environmental, and financial expectations for the funder organization as a whole and for executing agencies, thus guiding strategic decisions regarding projects and collaborations.

impact

With the adoption of IRIS metrics to OMJ’s grant portfolio, in addition to its investment projects, the organization hopes that the outlined benefits will lead to better management of individual projects and improved communication of results inside and outside the IDB.

4. IRIS and User-Generated Metrics: An In Depth Look 4.1

IRIS Metrics

In conjunction with the adoption of IRIS, OMJ adopted the PULSE platform, a cloud-based portfolio management system, to manage its loan and grant portfolio.6 Now managed independently, PULSE grew out of the need for a streamlined tool for managing IRIS data, and it was initially financed by GIIN members. The platform was thus built with the goal of tracking

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IRIS and the GIIN published in 2011 the first analyses of aggregated IRIS performance data from a diverse set of organizations receiving funding from, and working with, leading impact investment intermediaries. IRIS and GIIN publish these reports to allow for benchmarking of performance across the impact investment field. The report can be accessed at: http://iris.thegiin.org/data-and-benchmarking 6 For more information on PULSE, visit http://www.app-x.com/pulse

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not only financial and operational metrics, but also social and environmental performance. In PULSE, all IRIS metrics and their definitions are easily accessible.

PULSE users can easily select IRIS indicators to measure project outputs and results. IRIS indicators can be incorporated into the results matrix of projects seeking OMJ technical cooperation grants early on, as required by the Bank’s Grants and Co-Financing Management office, serving to report on progress of planned activities and outputs.

IRIS metrics that describe the project’s financial performance, the project’s operational impact, and the impact of the products offered by the grantee have been included in OMJ’s PULSE interface as metrics readily available for selection for the management of individual projects.

Indicators that provide organization and product descriptions (i.e. target beneficiary demographic, client locations, client type, etc.) have been incorporated into the PULSE Technical Cooperation Profile, which provides a record of each technical cooperation project that OMJ has proposed containing detailed information on project objectives, activities, timeline, executing agency, and beneficiaries.

Below are examples of the IRIS indicators available for selection for individual projects managed within OMJ’s PULSE interface: Financial Performance Metrics Metric Name

Operating Expense

Description

Metric Type

Unit Type

Flow

Currency

Ratio

Percent

Balance

Number

Expenditures incurred by the organization as a result of performing its normal business operations.

NOTE: For financial services companies this does not include Financial Expenses or provisions for loan losses (impairment losses).

Ratio of Personnel Expense to Loans Receivable Gross.

Microfinance Personnel Efficiency

Calculation: Personal Expense/ Average Loans Receivable Gross Note: To calculate the “Average”, add the beginning balance and the ending balance and divide by 2.

Operational Impact Metrics

Caregivers Employed

Number of caregivers employed by the organization at the end of the reporting period.

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Departing Permanent Employees

Total number of full-time and part-time employees departing the organization (for any reason) during the reporting period.

Flow

Number

Product Impact Metrics Number of Housing Units Financed

Number of individual family housing units projected to be constructed or preserved as a result of investments made during the reporting period.

Flow

Number

Clients Provided New AccessBusinesses

Number of clients, businesses or organizations, who were served by the organization and provided access to products or services they were previously unable to access.

Balance

Number

4.2

•

Metric name: Displays the name of the metric.

•

Description: Provides a description of metric with sufficient detail to ensure accurate collection.

•

Metric Type: Indicates whether the metric should be reported as a flow (number that occurred during the reporting period), as a balance (total number over the life of the project as of the reporting date), or as a ratio (computed ratio for the reporting period).

•

Unit Type: Indicates if number reported should be in currency, number, percent, or 1/0 (1=true/yes;0=no/false) format.

Metric Sets

The IRIS library provides a set of commonly-used indicators that equip the impact investing industry with standardized metrics for interventions in different sectors and with different objectives. OMJ is able to take better advantage of this innovative approach by coordinating within the department to establish which IRIS indicators should be tracked in each benefiting economic sector.

With that goal in mind, OMJ established metric sets: a required minimum list of IRIS indicators per sector to be captured on any given operation. By doing so, OMJ is able to capture the same information across similar projects, compiling data that is meaningful and can be aggregated.

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 Examples of Metric Sets Sector Housing Metric Set

Agriculture Metric Set

Microinsurance Metric Set

Indicators Housing Units Value of Housing Units Financed Individuals Housed Client Individuals: Smallholder Cultivated Land Area Average Yield Producer Price Premium Loan Insurance- Number of Clients Average Insurance Premium Minimum Insurance Premium

Those responsible for grant projects should utilize these metrics sets, always considering the nature of the project and the capacity of the executing agency to provide data. Beyond this minimum list, other IRIS metrics related to the project objectives and activities can be added to the technical cooperation for tracking during the implementation phase.

By following these processes, OMJ ensures that the results from different projects in the same sector can be aggregated and reported as overall impact.

4.3

User-Generated Metrics

While the IRIS initiative is focused on ensuring that the most appropriate indicators are included in the IRIS library, there will be instances when pre-established indicators are not available for a particular sector or they do not capture one of the main goals of an organization receiving grant funding. After carefully analyzing the available IRIS indicators, the development of new usergenerated metrics may be required to track the progress and performance of project activities.

To do so, OMJ has created an internal process to ensure that only necessary metrics are added to the system. The goal is to avoid duplicative metrics or indicators that are too specific to one operation, which would diminish OMJ’s ability to aggregate data across projects. OMJ has created an internal Metrics Team to ensure that those generating indicators have a global vision of the grant and loan portfolio and avoid creating metrics that would be applicable to a small set of projects only or that already exist within the IRIS taxonomy. By having this encompassing knowledge of OMJ technical cooperation projects, the team will be better positioned to design useful metrics, in addition to developing an expertise around the subject.

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Examples of User-Generated Metrics

Metric Name

Description

Metric Type

Unit Type

BOP Business Plans Financed

Number of BOP business plans financed by the Bank or other organizations as a result of the TC efforts during the reporting period.

Flow

Number

Flow

Percent

Balance

Ratio

Percentage of students that were previously attending school (including early childhood programs), university, or professional degrees and dropped-out from these courses during the reporting period.

Student Dropout Rate

Calculation: (Number of students that droppedout of school, university, or professional degrees at the end of the reporting period)/(average number of students enrolled in school, university, or professional degrees during the reporting period*) *Average number of students enrolled in school, university, or professional degrees can be obtained by averaging these numbers at the start and at the end of the reporting period.

Price discount/savings obtained, by the consumer when purchasing a good/service from the organization. This is relative to the average price that would otherwise be obtained in the local area for a similar good during the reporting period.

Consumer Price Premium

Calculation: (total purchase expenses for a quantity of goods affected by the program potential purchase expenses for the same quantity of the same goods in the local market)/(total purchase expenses for a quantity of goods affected by the program) In cases where the program affects an entire store (e.g. MSMEs buying goods from organization), a basket of goods can be used as a reliable proxy. For telecom and other services compare similar product offerings, e.g. price/minute or internet bundle (bandwidth, speed, etc) and compare average prices between main local competitors and the product/ service offered by the organization.

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4.4

Important User-Generated/IRIS Metrics Required for All OMJ Technical Cooperation Projects

In order to easily aggregate and understand the number of individuals and organizations benefiting from OMJ technical cooperation projects, the OMJ Metrics Team created five metrics that should always be considered and, at a minimum one of them used, for every technical cooperation project, including: •

Client Individuals Number of individuals or households who were clients during the reporting period.

For microfinance clients, this refers to active clients.

For healthcare providers, this refers to patients.

Note: Organizations tracking households should report number of households.

Organizations tracking individuals should report number of individuals.

Note: This is intended to capture the number of individual consumers served by the organization, not the number of consumer transactions. For example a customer who makes two purchases during a period would only be counted once

•

Microentrepreneur Distributors: Number of microentrepreneurs distributing the organization's products/services during the reporting period. This indicator is intended to capture microenterprises participating in the project. Microenterprises are defined as businesses with ten or fewer workers and which are often unregistered and run by the Poor or Very Poor.

•

Clients: SMEs: Total number of (unique) small and medium enterprises, who were clients during the reporting period.. Businesses with more than 10 and fewer than 50 employees are defined as small. Businesses with more than 50 but fewer than 250 employees are defined as medium.

•

Client Organizations: Total number of (unique) large organizations, who were clients during the reporting period. Large organizations are defined as businesses with more than 250 workers.

•

Governmental Organizations: Total number of (unique) organizations/entities, , who were clients during the reporting period.

•

Non-governmental Organizations: Total number of organizations, who were clients during the reporting period.

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(unique)

government

non-government

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4.5

Applying IRIS and User-Generated Metrics: An Example from OMJ’s Portfolio

Below is an example of the IRIS metrics used to track performance for select activities of a technical cooperation project:

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5. Conclusions The integration of IRIS metrics within OMJ’s processes, which could also apply to other organizations making impact investments and/or grants, can be summarized as follows:

OMJ Agree on planned activities and Select metrics as

outputs they relate to expected and results of project outputs project and results

OMJ Select

IRIS metrics

Go through internal process for developing usergenerated metrics

Executing Agency

Report on metrics

Aggregate

and disseminate results

Executing Agency

With the adoption of standardized metrics and internal processes to administer the development and maintenance of user-generated metrics, OMJ and other funders can better manage their projects and set clear expectations with executing agencies. Moreover, standardized metrics will facilitate the reporting of results to key internal and external stakeholders.

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