This piece highlights common strategies and pitfalls that asset owners, managers, and stakeholders within the impact investing community confront when making their processes more effective, aligned with their strategic goals, and incorporating data-driven decision-making.

Navigating the myriad acronyms, frameworks, and reporting requests in the impact investing landscape can be overwhelming. Operators often find themselves lost in compliance and reporting, leading to misaligned data sets and a loss of purpose. This article aims to guide asset owners, managers, and stakeholders in creating more effective, data-driven decision-making processes that are aligned with their strategic goals.

Below I outline recommendations, implementation strategies, and common pitfalls based on what we hear most often.

Recommendation 1: Strengthen Alignment

Clearly outline the required data collection and reporting processes, specifying the frequency and relevance to the business or fund strategy. Ensuring that the collected data is material and meaningful to your goals is critical for effective decision-making.

Implementation strategies:

• Establish governance mechanisms between related parties (e.g., LP & GP, GP & PortCo). For instance, create a sustainability charter that aligns specific objectives, set dynamic goals, and tie the achievement of these goals to management compensation. In the event of non-compliance, have a remediation strategy in place.
• Establish a reporting cadence: Spend time sharing lessons learned, understanding what worked, what didn’t, and what could be improved.
• Build in a feedback loop: This is a crucial part of the process that will make your portfolio companies feel engaged and part of the decision-making process. Bring them together. Where individual companies excel, ask them to present their learnings and findings.

Common pitfalls to avoid:

• “I shared the workbook and never heard back.”
• “The data points we were asked to provide didn’t make sense for our business.”
• “I’ve never seen any benchmark data. I have no idea whether they looked at what we shared.”

Recommendation 2: Dedicate Resources and Time

Companies, much like living organisms, consist of interconnected employees, supply chains, and products. Building a strategy that is fit for purpose requires understanding these interconnections and continuously engaging stakeholders through education and authentic value alignment. Understanding that this is a marathon is beneficial for mutual success. Engage your stakeholders on this journey through education, live your values authentically, and seek alignment and participation towards achieving your strategic goals.

Implementation strategies:

• Understand who your stakeholders are: By thoughtfully mapping your internal and external stakeholders, you are more likely to identify the positive and intended impacts that you create across your value chain, as well as the negative and unintended ones.
• Revisit this process: This is a dynamic exercise, and new risks and opportunities will appear as your business continues to evolve.

Common pitfalls to avoid:

• “We didn’t identify that stakeholder, so we didn’t see the risk, which ended up costing us.”
• “We wish that we had included a broader representation of team members in the conversation. They highlighted both risks and opportunities that our management team had missed.”

Visual representation of the key stakeholders and data providers in the impact investing ecosystem, highlighting the complex interactions and dependencies that influence organizational decision-making processes.

Recommendation 3: Upskill Your Board, Executives, and Team Members

Research indicates that while 90% of board directors and senior management acknowledge the importance of sustainability initiatives, only 50% feel adequately equipped to implement these strategies. Providing ongoing education and empowering sustainability teams are essential steps in bridging this gap and achieving long-term goals.

Implementation strategies:

• Education and Training: Directors and senior management should receive ongoing education on sustainability issues, including emerging trends, regulatory changes, and innovative practices. This can help bridge the knowledge gap and enable more effective decision-making.
• Dedicated team and resources: Establishing or empowering central sustainability teams with decision-making authority can ensure coherent and effective implementation of sustainability initiatives across the organization. These teams should work closely with business units to align efforts and share best practices.

Common pitfalls to avoid:

• “I lead sustainability across the organization, but I don’t have the budget to hire any resources.”
• “In the past few years, my role has transitioned to nearly 70% ESG/sustainability reporting. I never have time to work on strategic initiatives to drive improvements.”

Charting the path forward

As we strive to foster an environment where data drives genuine insight and improvement, we must move beyond the inadequate, one-size-fits-all models of impact measurement. By embracing systems that recognize and adapt to the unique contexts and impacts of individual entities, we can achieve more meaningful and effective outcomes.

The call to action for this article is clear: We must foster an environment where data serves as a tool for real insight and improvement, not just compliance. What strategies have worked for you? We love to hear where people get stuck and what solutions, tools, and strategies you have implemented for mutual and aligned success across your value chain.