Investors wanting to produce quality impact performance reports should be forthcoming about potential impact risks and lessons learned, according to BlueMark, a provider of impact verification services.
In a research project focussed on impact performance reporting by private market general partners (GPs), the organisation found that reports focussed primarily on successes, with just 39% of reports offering commentary on “impact risks”, only 25% including commentary on impact underperformance and none including quantified negative impacts.
Its analysis of 31 GP impact reports also suggested that cherry-picking of results was common, as only about a third of the reports included information about all the investments in the portfolio.
The research project, which also involved consulting with 57 industry stakeholders, was motivated by what chief executive officer Christina Leijonhufvud referred to as heterogeneous approaches to impact reporting “and a perception by end readers that the reports are incomplete and insufficient to meaningfully interpret impact results”.
“Given the market imperative to improve the quality and usefulness of impact performance reports, we wanted to gain a deeper understanding of best practices in impact reporting and propose pathways to accelerate their adoption.”
According to BlueMark, transparency about risks and lessons learned is one of a set of specific elements that characterise quality impact performance reports.
It also contended that the market sees quality reports as providing relative performance results, setting out performance relative to targets, over time and, where possible, relative to external benchmarks.
According to BlueMark, the key elements of quality impact performance reports that it has proposed are based on a core set of concepts around which its interviewees aligned.
“This suggests that, as a field, we are closer than we think to establishing shared guidelines to ‘step up’ the quality of reporting, it said.
IPE’s latest annual impact investing report will be out soon