The $322 billion impact investment market is grappling with a fundamental question: How does it measure how much good it has achieved?

• Global impact funds now have over $322 billion in assets under management, PitchBook data shows.
• Many of them face a similar issue: How do they measure how impactful their investments have been?
• Relevant data collection will be the key to the industry's future success, according to a panel at MWC.

Impact investing has become big business.

Funds dedicated to everything from improving working conditions to tackling carbon emissions now have over $322 billion in assets under management, according to PitchBook. But despite their explosion in popularity over the past decade, many of them are tussling with the same issue: How do we measure how impactful our investments have been?

The impact of climate-tech investments is often equated with the potential metric tons of carbon dioxide removed or redacted from the atmosphere. European funds World Fund and Counteract, for example, use this method to justify investments. 

But measuring social impact is more complex and could open the sector up to greenwashing, according to a panel at 4 Years From Now, a startup conference hosted this week alongside Mobile World Congress 2023 in Barcelona. Social impact is wide-ranging and includes efforts to improve equality and justice. 

But there is no overall definition accepted globally of what impact is, according to Matteo Cera, cofounder at Hogaru, a Colombia-focused cleaning startup. Hogaru helped formalize illegal cleaning work and gave its workers job security. 

The EU taxonomy, a classification system for sustainable investments, offered some clarity to fund managers. It put legal restrictions in place for what counts as an impact fund based on investments and reporting requirements, but there is no clear framework on how to calculate portfolio impact. 

Cera added that he struggled to call Hogaru an impact company at first because he was "just being legal." 

Social impact measurement is all about the baseline, said Maria Oliva Farriol, impact and ESG manager at Oryx Impact. Oryx Impact is a Barcelona-based fund of funds focused on economic development, climate change, and equality in Africa.

"Understanding impact is about understanding the difference you're making," Farriol said.

But this can be inherently challenging to standardize given that every business or fund is different. There is also a "danger" in setting up an inflexible standard, she added. 

"If we have a VC, early stage, investing in fintech, we're not going to be there on day one asking for emissions … that's not useful. It's not meaningful, it's not going to help that VC scale their impact in their portfolio." 

Businesses must collect data to understand their baseline and subsequent impact, Farriol said. This needs to be causal, not a correlation, and KPIs should always be relevant to the fund or company and its stage, she added.

Data collection is not without its challenges. As a fund of funds, which has 400 companies underneath its portfolio of fund managers, Oryx Impact's request for data from its own portfolio has been a "pain" rather than being catalytic, Farriol added. If funds are being asked for data from all of their investors, it can become a burden.

To avoid this, Oryx Impact is taking advantage of technology to digitize its impact measurement and management strategy. It hopes to give its portfolio the tools and methodologies they need to gather their own data.