No single, unified best practice has yet emerged for impact investing, and a proliferation of methodologies and metrics has introduced an element of confusion. Simply navigating through all the resources available to impact investors can be a challenge. In the second post in this three-part series, our Franklin Real Asset Advisors team, in collaboration with consulting firm Tideline, help guide us through what they call the “five building blocks” of effective impact management.

As impact investing gathers pace, investors are refining their approach from an early emphasis on impact measurement—the practice of quantifying impact outputs and outcomes—to focus on impact management, a forward-looking approach that integrates impact considerations into each stage of the investment process. This new focus aims to understand an investment’s impact more fully and improve social and environmental performance throughout the lifetime of an asset.

The different frameworks and tools available to impact investors can be classified into five broad categories: objectives, standards, certifications, methodologies and metrics. These building blocks come into play at different stages of the impact management process. The table below illustrates a selection of the most prominent and widely accepted examples in each category.

Objectives

The numerous interpretations of impact objectives have posed a challenge to investors and entrepreneurs seeking to align around a shared set of goals. As an extension of the Millennium Development Goals launched in 2000, the creation of the UN Sustainable Development Goals (SDGs) was a significant step forward in the pursuit of a universal framework. These goals have helped align the public, private and philanthropic sectors around 17 broadly recognized social and environmental priorities.