How do you measure, compare and aggregate the impact of across a whole portfolio, where no two companies work in the same sector, use the same key metrics, or have anything in common?
You’d think this would have a simple answer, as impact investing is growing in popularity but far from a new idea. Turns out this is a big open question for impact investors, but a question that now has an answer, the Pinchot Impact Index.
First, that impacts vary tremendously. One solar lantern is immensely less impactful than ending all hunger. They differ by orders of magnitude. Given those vast differences, we can stop arguing about the differences between one solar lantern and one vaccine and one tree.
Second, that despite the range of impacts, we can compress the values down to a scale of 1-7 (or -7 to +7 to include both positive and negative impacts). We’ve been rating books and movies on a scale of 1-5 for decades, so let’s do the same for impact.
Third, mixing the orders of magnitude and the tiny scale gives us a logarithmic index, which, using one formula on a simple spreadsheet, can let us combine impacts amongst projects with an organization, or aggregate the impact of any portfolio of investments.
All of this is explained in detail in The Pinchot Impact Index, along with a background on SROI, IRIS, and GIIRS, three other methods of measuring impact, plus a primer to re-teach you orders of magnitudes, which you learned in grammar school.
If you are an impact investor or care about impact, grab a copy from Amazon today, give it a read, and comment below.