Impact Beyond Details: Navigating Real-world Outcomes and Governance Frameworks

Thought Leaders in Action: Interview with Eszter Vitorino Fuleky, Lead Expert Sustainability Advisory at Van Lanschot Kempen

How do we make sure we don’t fall into the trap of hitting the target but missing the point? How do we harness the mission of impact investing which is to make real-world outcomes? To answer such questions we had the pleasure of sitting down with Eszter Vitorino Fuleky, Lead Expert Sustainability Advisory at Van Lanschot Kempen (VLK). We talked about the current state of measurements in the impact investing world, exciting new developments and what makes impact measurement complicated.

One could say that Eszter knows a thing or two about Sustainability & Reporting having started her career at the Global Reporting Initiative (GRI), a leading global standard setter for corporate sustainability reporting back in 2007 and over the years contributing to several sustainability standards setting committees. Amongst others, she was a member of the European Commission’s Technical Expert Group on Sustainable Finance, as well as an expert working group member of the International Corporate Governance Network (ICGN), the Impact-Weighted Accounts Framework (IWAF), and European Sustainability Reporting Standards (EFRAG).

Over the years Eszter has witnessed a move to greater transparency, where companies report on their impact achieved and therefore bring about better real-world outcomes. She contributes that progression to companies increasingly having a good framework in place. ‘A good governance framework is crucial in impact investing because it ensures that the investments are aligned with their intended goals and that the interests of all stakeholders, including beneficiaries, investors, and the broader society, are considered and protected. By setting up processes and workflows essential elements are harnessed that answer questions such as: What am I doing? What was my intention? What did I set out to do initially? How do I govern these processes? And how do I measure what I have achieved?’

‘Transparency plays an essential role in that chain. Investors should be transparent about their impact objectives, investment strategies, and the social and environmental performance of their investments. This transparency builds trust among stakeholders and allows for accountability. Setting measurable and time-bound impact targets, monitoring of progress, and making adjustments when necessary are part of a clear decision-making processes that consider both financial and impact-related factors.’

We asked Eszter what she thinks of the current state of measurements in the impact investing world. ‘I think it has been maturing a lot over the past years. There are industry-leading best practices that have evolved driven by market participants. For example the GRI, the Impact Management Project’s 5 dimensions, and The Operating Principles for Impact Management originally from the IFC.  The Theory of Change and its objectives are an important linking pin. Together these are all pieces of the impact measurement puzzle that fit beautifully together.’

‘Everybody who reports on impact every year raises the bar. Impact investors are collaborating and share learnings with peers and industry stakeholders. This helps drive the development and adoption of best practices and standards in impact investment governance. Engaging with organizations such as the Global Impact Investing Network (GIIN) and participating in industry initiatives can provide valuable resources and guidance.’

 

The only thing more dangerous than the absence of progress is the illusion of it.

‘As the impact investing space is growing so rapidly, which is great, it also calls for good governance frameworks. A good governance framework harnesses the intentionality, and additionality as well as a solid measurement framework. A study I read from Ernst & Young in Australia, called ‘Enough – A review of corporate sustainability, in a world running out of time’, mentioned “In the quest for sustainable development, the only thing more dangerous than the absence of progress is the illusion of it” which really cuts to the core of what we should be mindful of when measuring impact. The article advocates a clear measurement framework to measure actual progress achieved and to enable making consequential steps.’

‘Impact measurement also serves the purpose of making concrete what we are trying to do. One of the risks of focussing too much on governance scores or ESG risk scores is that we hit the target but miss the point and that goes against the mission of impact investing where we are looking for real-world outcomes.’

Technology and technology-enabled data

We asked Eszter where she thinks the new developments are. ‘Technology and technology-enabled data collection is an exciting development in impact measurement space. For listed asset classes we are all used to having ample data available but for asset classes in the private markets space that is not the case yet. For these asset classes, there are now many new innovative ways in development to support data collection such as geospatial imagery, artificial intelligence, or sensors on the ground collecting data. The risk there is that you might end up with so many data points that you don’t see the forest from the trees and it becomes obfuscated which data points matter and what the data is trying to say.’

Not everything that matters can be measured.

‘The flip side is that not everything that matters can be measured, and not everything that is measured matters. I think that’s what makes impact measurement complicated. Because you cannot put everything in a numerical framework. Operating principles or workflow are also important because they provide better insight into why are you doing it and where you are heading.’

Breadth versus depth

‘There is also breadth versus depth when talking about measurements. Depth is beautiful in the sense of becoming more accurate but it also opens up the risk of limiting scale because we’re too busy with creating the perfect picture. If you’re going into a lot of detail, you might miss the bigger picture. Adding more details or measurements might give you a more complete picture but it also takes longer. More diligence is great, but back to the point, only if you have the right governance structure in place, you should trust the process and controls put in place, and don’t get stuck in the details.’