Editor’s Note: Meeta Misra, GreenArc Capital’s Head of APAC, is a senior financial services professional with 15 years of experience. Meeta is a profit-with-purpose-driven individual specializing in impact investments and ESG advisory, focusing on leading the delivery of social impact and sustainability initiatives within financial services. In this interview, Meeta shares her journey in impact measurement and management, her challenges while implementing the measurement framework and many more.
Can you share your impact measurement and management journey with us and what inspired you to work in this field?
I come from the traditional finance space, having spent over a decade as a head product specialist in the asset management and hedge fund industry. About five years ago, I transitioned into the impact investing space as a consultant, which I found very intriguing. During my professional career, I had previously met and interacted with many peers who were working in impact investing, specifically microfinance at the time, which was the dominant sector within impact investing. They had introduced me to various elements of the sector, and this is where my interest developed. One significant gap I noticed while working on various consultancy projects with different entities, such as non-profits, private equity firms and investment institutions, was the lack of an embedded impact measurement or management process in their systems or processes. The concept was still new and developing, and even today is in quite a nascent stage. Even those who were doing impact measurement were quite unfamiliar with the space. I quickly saw a market gap. Speaking to professionals in the sector, they expressed that this was something they needed to include and required help with, especially when it came to bringing credibility to their investments and communicating with stakeholders about how they were identifying the investments they were making.
GreenArc provides a software solution that assists financial institutions and investors in measuring and understanding the exact positive impact they’re making on society and the environment. How does it work?
We’ve developed a technology solution called impactGINI, which provides impact scoring, analytics and reporting for impact management. It’s an IMM (impact measurement and management) tool, a SaaS (software as a service) solution that we’ve developed to assist financial institutions and government economic programs that are deploying capital with the aim of creating positive social or environmental impact. It helps them collect, measure, and track the data associated with stated impact objectives to realistically assess whether they are achieving their intended impact and where investment proceeds are being used. The foundation of the solution is to bring granularity and transparency to the sector through its data-driven process, with the data collected on an end-beneficiary level. For example, in the case of microfinance or financial inclusion, we gather data from the loan recipient, which could be an MSME (Micro, Small & Medium Enterprises), a farmer, or a female business owner, through credit files they need to fill out during the credit approval process. This eliminates any manual intervention in the data and the need for surveys. The data is fed into our solution, which then displays key output numbers associated with impact measurement or a Theory of Change on a digital dashboard. This dashboard also shows UN SDG alignment and analytics related to key impact themes, such as gender equality, fair compensation, diversity and inclusion, carbon emissions and environmental practices with respect to the investment or portfolio,
We’ve developed a technology solution called impactGINI, which provides impact scoring, analytics, and reporting for impact management. (…)The foundation of the solution is to bring granularity and transparency to the sector through its data-driven process, with the data collected on an end-beneficiary level.
In addition, the solution provides impact scoring. We have developed a scoring mechanism, a rating on a scale of 1 to 10. This ex-ante rating is based on the socio-economic and development factors that we collect on behalf of these beneficiaries through the data files. This score helps investors understand the potential impact of their investments and provides an avenue to allow comparability and consistency across investments. If we take the premise of risk-adjusted return, a decision is made based on an expected risk-adjusted return, which is a factor of various financial and risk factors. We have added an impact rating to help financial institutions make decisions based on risk, return, and impact parameters.
For instance, if I’m your client and I have this dashboard where I can see my scoring points, can I also see other companies’ data for comparison, or is it only my data that’s visible?
You can only see your data due to data privacy considerations concerning other companies’ data, portfolios, and investments. Moreover, we’re not comparing companies. Instead, we’re measuring impact against the stated objectives of each investment or portfolio. We utilize a Theory of Change to understand how they expect to achieve these social or environmental objectives and then measure whether the financing can achieve that stated objective based on the indicators we collect. We do this relative to the socio-economic benchmarks of that country, such as poverty levels, education levels, and income to ensure the impact reported is within the context in which it is being created. Companies have very different objectives, standings, and alignments, so comparing them wouldn’t be prudent. However, as long as we have sufficient data covering a sector or region, we can use machine learning tools to identify patterns and provide recommendations based on that data. This can be a valuable tool for understanding the financial markets, identifying where and how greater impact can be created, and then directing financing or creating financial products based on that data towards specific sectors and populations.
That sounds incredibly powerful. Did you face any challenges while implementing the measurement framework you use?
Data collection and availability is always a challenge. On this, our approach is to take an in-depth focus on what we are looking to measure. We only aim to collect between 20 to 30 indicators, unlike an ESG provider who may collect hundreds of metrics across a broader coverage. This focus on key indicators helps us understand whether a particular impact objective is being achieved. Additionally, to avoid adding a data burden to the client, most of the data we request is already in files such as KYC (know your customer) files or credit documents. We’re taking an impact lens to this same information. For example, we can understand their socio-economic strata when they declare income levels, which is required in credit analysis to assess their capacity to repay. About 70% to 80% of the information we request is already available in data files. We work with our clients for the extra 20% to 30% that needs to be added to see how we can identify those key metrics.
What motivates investors and financial institutions to implement this impact measurement and management tool, especially in Asia?
There are a few factors. One is the growth of the market. Impact investing has crossed a trillion dollars in AUM, and the sustainability finance sector is expected to be 95% of all assets by 2030. There will be a wealth transfer to the millennial generation, who are more ethically driven in their decision-making when it comes to investments. This will drive a lot more interest in the sector. There’s also a moral responsibility, which is being called out more frequently with regards to accountability, societal expectations, and addressing climate change. These are all unavoidable topics. Regulations will also push the market. We’ve seen it in Europe, the UK, and the US. Asia will follow suit quite swiftly. Another key driver is the market opportunity, particularly in emerging markets, where the investment opportunity set in impact sectors can provide diversification and yield-enhancing investments, attracting greater investor capital. An impact measurement and management tool is needed to support these avenues of growth and development.
Impact investing has crossed a trillion dollars in AUM, and the sustainability finance sector is expected to be 95% of all assets by 2030.
You mentioned that your framework aligns with global industry standards such as the UN Sustainable Development Goals, UNDP SDG Impact Standards, SROI, IFC, IMP, GIIN, GRI, IFRS, TCFD, and B-corp in your impact measurement and management practices. Could you elaborate on this?
Our framework aligns with industry standards and best practices. Since there isn’t a universally accepted standard currently, we’ve chosen to align with the most established and recognized in the industry to develop a best-in-breed framework. Our entire process and impact thesis follows the SDG impact standards, which we’ve integrated into our business strategy, due diligence, and processes. The framework and the scorecard that we’ve developed was under the IMP (Impact Management Platform), and we were part of their Impact Frontiers Asia cohort, where they bring active practitioners into the market to develop best practices under their guidance. This brings the scoring/impact measurement element into the SDG standards process. As for the indicators, we’ve leveraged GIIN’s IRIS+ database, the IFC (International Finance Corporation) performance standards, GRI (Global Reporting Initiative), and B Corp.
Our framework aligns with industry standards and best practices. Since there isn’t a universally accepted standard currently, we’ve chosen to align with the most established and recognized in the industry to develop a best-in-breed framework.
What about SROI?
We don’t use SROI (social return on investment). While it’s valuable, SROI requires a lot of assumptions and is very research-heavy. It’s not easy to integrate into a technology solution because of the volume of information required to justify the numbers produced. Instead, we’ve taken the rating approach because it’s a more familiar concept that investors can align with, like risk-adjusted returns or credit ratings.
Most of the data you collect are output indicators. Do you also design questionnaires to collect feedback or changes that happened to the stakeholders?
Our solution provides ex-ante impact scoring and associated analytics, meaning it’s a predictive tool to help inform investment decision-making. On a periodic basis, we can collect the same information, which enables us to track key indicators. This helps us see changes on a beneficiary level as well as at a societal or population level over time. For example, we can see if income levels are increasing, if the purpose of finance is changing, and if more finance is being directed towards females over time as more capital is being invested. On a periodic basis, we aim to recollect that data to understand what change has been created.
What are the most significant opportunities and challenges facing impact investing and impact management in the next five years?
To be honest, opportunity hasn’t been lacking because there is always an investment opportunity to create some positive impact. What had potentially been lacking is the ability to source viable investment deals that meet risk, return, and governance criteria. Going forward, I think we will see a lot more investment activities directed towards climate solutions in this environment, including clean energy access, nature-based solutions, and low-carbon technologies. Renewable technologies, such as solar-powered batteries, which are now a lot more affordable, are a lot more accessible, especially for EVs, where they can replace lithium batteries with solar-powered batteries. Technologies that absorb carbon from the atmosphere will come into focus, but these are still quite expensive, so they need to be made more scalable and efficient for the mass market. There’s a lot of scope with regards to investment opportunities, and new technologies will hopefully drive much of that.
I also think the ‘E’ of ESG has dominated the markets quite substantially, and the ‘S’ is garnering more attention from investors. This trend is likely to continue and accelerate. I think this has been driven by the pandemic, which was a huge social health crisis. We also have markets experiencing economic slowdown or recession and struggling societies with high-interest rates and inflation, not to mention the Ukraine war, which has caused a lot of human and social devastation. I think the ‘S’ is now coming into the fore much more, resulting in more opportunities within that sector. These will focus on alleviating poverty and inequality, SME financing, education and access to health care. I think technologies actually support all of these investments, and if you have a solution that helps disclose and measure climate-related policies, disclosures, or risks, this will be very important going forward. There needs to be evidence and accountability for claims of impact with investments, as well as managing these risks using impact data.
GreenArc primarily focuses on social investments, but do you also want to move more towards environmental investments?
The majority of the impact measurement projects we have completed to date have focussed on more social impact, particularly within the context of financial inclusion – investments targeted at supporting under-served populations to access basic goods and services such as financial services, education, MSME lending, etc. However, we have recently been appointed the impact analytics partner for MUFG to support their sustainable agri-financing platform. This very much includes environmental impact measurement in addition to social factors. We are also looking at developing our technology solution, impactGINI, to cover green bonds. This is an asset class that has seen a lot of emergence and traction in the last few years, with many principles and frameworks, like the Green Bond Principles (GBP), governing them. However, there is still the lack of a standardized impact measurement framework to measure and report the impact of green bonds. Given the significant growth in this market, I think investors are demanding more information on: “What is the use of proceeds? And where have those proceeds been deployed in the market?” So we’re looking at broadening the scope of our solution to cover green bonds, which would be focused on the environment.
How do you see technology and data transforming the impact investing and impact management space in the next decade?
Technology is exciting and brings with it a lot of opportunities for creating positive change. For example, we’re looking to automate our impact reporting and generative AI is an element that could be leveraged to here. This will make the process a lot more scalable and efficient. If we can use generative AI tools to convert charts to text or data analytics into a narrative within a predefined framework, then I think this could be very powerful, substantially reducing manual and onerous tasks. Machine learning tools and AI are very much embedded when you have a big data solution as these features help identify patterns and anomalies within data sets to glean insights and provide recommendations anchored in real data. I’m quite excited to see how the space can further evolve with greater integration of AI and the models and tasks that can be applied to impact management.
Technology is exciting and brings with it a lot of opportunities for creating positive change. For example, we’re looking to automate our impact reporting and generative AI is an element that could be leveraged to here.
But, of course, there are challenges with using technologies such as ChatGPT or generative AI. As it’s pulling information from the internet, there are data privacy and cyber security issues. It’s use has to be managed very carefully, and the appropriate controls need to be in place when you’re looking at embedding these tools. However, the opportunity is exciting and interesting when looking at the context of using AI for impact measuring, impact investing and reporting. It’s an area we focus on a lot with regards to how we can use AI to maximize and enhance the impact that financial institutions can deliver.
Do you have any advice for companies looking to incorporate impact measurement and management practices into their operations?
My advice is to look at all the resources out there. There are a lot of resources for knowledge gathering, sharing, and speaking to industry experts who have been in the field for their insights and opinions. The IMP and the SDG Impact Standards are the two key industry bodies we have worked closely with to develop our framework. It is important to understand that it’s a process and it takes time. It will probably take six months to a year to put in place a robust impact management process. It’s an evolving process, and there will be modifications and refinements – you have to learn as you go. But the important part is starting with some basic tools and resources. Also, explore if there are solutions in the market that provide what you need if you’re not looking at developing it in-house.
Lastly, what exciting projects are GreenArc Capital working on in the coming years?
We are working on a blended finance project, an impact bond with the U.S. Development Finance Corporation (DFC), to launch in the next couple of months. The transaction is very much looking at investing in those sectors and regions within South and Southeast Asia that were the most impacted by COVID-19. It’s a 5-year bond that offers a unique financial instrument to catalyze private capital to the development markets in Asia. I think blended finance is also a very interesting innovative financial concept that private investors can find comfort in regarding co-investment if there’s a risk guarantee or a first loss provision where the risk of investing in certain markets has been removed or mitigated against. It allows us to widen the net of investors looking at getting involved in impact products, which can be game-changing for the sector. If it’s successful, we hope to make it a series of impact bonds that we can launch in the markets over the coming years. Our impact measurement solution, impactGINI, is responsible for providing the impact measurement and reporting for the bond over its duration.
(…) blended finance is also a very interesting innovative financial concept that private investors can find comfort in regarding co-investment if there’s a risk guarantee or a first loss provision where the risk of investing in certain markets has been removed or mitigated against.
Do you have any suggestions for attracting people to implement this idea in Taiwan? Because we have tried for maybe seven or eight years already, but still don’t have this approach yet.
The mandate is essential. I don’t know if it would be a Taiwanese-focused bond or a regional-focused bond, but we realized that the mandate is very important for there to be alignment with a foundation’s or the government’s objectives because then there will be the impetus for pushing it through. The other element is for example, if an organization can provide a concessionary or development finance element, this would catalyse a lot more private capital to the markets to fill a certain development gap, which should be within the provisional scope of a foundation or the government. Whether the target impact is social, educational or environmental, this needs to be factored in. Most governments have a development mandate with regards to society. This mandate has to be aligned with an impact financial product, where they consider what kind of financing they would like to provide and what risk appetite they have. Combining these elements, risk, finance and impact, can then set the parameters for impact investing. There is also a significant marketing component to show that if a specific government or sovereign is interested in launching social impact or sustainability bonds, it puts them on the world’s financial stage. It can attract a lot of foreign investors looking for these types of products. As there aren’t many in the region, it could set a precedent.
As our closing question, what do you think about the SDG standard, and what is the current situation with it in Singapore?
I think they are suffering from the fact that the Standards are still new and people are unfamiliar with them. It’s probably one of the more comprehensive standards and it brings in all the different elements of the impact management process. It’s not an additional standard, but it leverages what’s existing in the market. That is a huge plus and attractive quality because people need clarification and guidance with how many different principles and standards there are in the market, and this sets it apart. However, they’ve set the bar quite high with regards to achieving the goal, and this is a factor that should be taken into consideration when introducing new standards – it needs to be comprehensive and credible but at the same time accessible to participants.
We may need to do something special here, some campaigns or workshops for companies to understand why this is important.
Meeta, thank you very much for your time and the excellent interview. It was very insightful and inspiring.