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Sharing our quest to measure the social and environmental benefits of our investments

Effective measurement of the social and environmental benefits of our investments is a significant challenge for all impact investors. In fact, more than one article has referred to impact measurement as the “quest for the holy grail”. At Deetken Impact, we are continuously refining and improving our approach so that we can report richer and more meaningful information to our investors.

This is a snapshot of our journey to measure and report our impact. We hope that by sharing it we can support other impact investors who are tackling the same challenge, and learn from those who are developing and refining their own methodologies.

Early Days

When we first began to invest in impact back in 2007, our approach was straightforward. We focused on qualitative information and anecdotal evidence to help our investors understand why our portfolio companies were so different from mainstream investments. e would describe how one of our investees, a financial institution in Honduras, for instance, offered its clients preventative health screening services in addition to business loans, and that for many of its clients living in rural areas this was the only time they were able to see a medical professional.

Impact Measurement 1.0

Several years ago, we took a major step forward to formalize our approach with the deployment of a customized social impact measurement and evaluation tool focused on microfinance and SME lending. For the first time, we could quantitatively compare the impact of different investments in our portfolio. This was tremendously valuable as a decision-making tool for Deetken Impact.

Impact Measurement 2.0

We recently undertook a complete refresh of our impact measurement methodology, which was motivated by several factors:

1.       Our investment mandate had broadened over time to include businesses outside of the financial services space, such as renewable energy projects.

2.       We noticed that some information we were collecting from our investee companies was more meaningful than other information. We wanted to streamline our data requests to make ongoing reporting quicker and easier for our partners.

We wanted to align our approach with international frameworks including the Sustainable Development Goals and IRIS, an initiative of the Global Impact Investing Network. We viewed this alignment as an important way to support the impact investing ecosystem while ensuring that our impact measurement and reporting was as understandable and transparent as possible for our investors.

Step 1 – Defining our Impact Goals

The first step in our refreshed approach was to carefully define our impact goals. It was important to us to align these goals with the Sustainable Development Goals (SDGs), a global agenda to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. The SDGs comprise 17 core goals that range from ending hunger to stemming climate change.

We are strong supporters of the SDGs as a useful framework to communicate and align impact objectives across a broad group of stakeholders including governments, NGOs and non-profits as well as investors.

One of the funds we manage, the Deetken Impact Fund, makes investments in financial institutions, renewable energy projects and social enterprises. These investments drive impact outcomes which are well-aligned with the SDGs, as shown below.

Deetken Impact Fund – Impact Goals

Ensure healthy lives and promote well-being for all at all ages.png

Step 2 – Developing our Impact Thesis

We wanted to be clear about how and what impact is generated by our investments. Like the thesis statement of an academic research paper, this statement anchors our analysis and is ultimately what we seek to measure.

To share an example, this is the impact thesis for the Deetken Impact Fund:

“The Fund acts as a partner and steward for our portfolio companies, each of which has been carefully selected for its contribution to one of our four impact goals. Where appropriate, we provide these companies with customized business advice and technology transfer designed to foster sustainable and durable business growth. By helping to grow this group of impactful businesses, the Fund drives increased business activity such as lending to micro and small enterprise, installation of new renewable energy capacity or greater outreach of health care services for low income women.”

Deetken Impact Fund – Our Impact Thesis

ImpactThesis.jpg

Step 3 – Defining our Measurement Framework

We had two primary objectives for our measurement framework: we wanted it to be streamlined and user-friendly, and we wanted it to be aligned with IRIS.

IRIS is a catalogue of generally-accepted performance metrics that leading impact investors use to measure the social and environmental performance of their investments. Where the SDGs set big, broad goals for long-term change, IRIS provides metrics for measuring more specific, near-term results. We “cross-walked” our SDG targets and IRIS metrics to translate our goals into something that could be tracked and measured. Through this process, we selected a concise set metrics for each of our investment sectors.

Importantly, most of our selected metrics are quantitative and can be “rolled up” from the investee company level to the aggregate portfolio level for the purposes of consolidated reporting to investors.

Step 4 – Measuring our Impact

So how does all this work in practice?

We use our selected metrics to conduct an impact screening of each portfolio company candidate. The candidate metrics are assessed by Deetken Impact on a relative basis alongside the metrics of comparable companies. For ongoing monitoring purposes, our selected metrics are informed by data which can be readily provided by investee companies on an ongoing, consistent basis.

Deetken Impact Fund – How We Measure Impact

(1) We support the UN's 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs). The SDGs comprise 17 goals that range from ending hunger to stemming climate change. The DIF targets 4 goals within this set: SDG3, SDG4, SDG7, and SDG8. (2) IRIS is a catalogue of generally-accepted performance metrics that leading impact investors use to measure the social and environmental performance of their investments. (3) While loan acceleration is an important protection, we rarely view this approach as an appropriate remedy. We take price in our reputation for highly constructive negotiations with portfolio companies, in which we focus on solutions that preserve our capital while maintaining the stability of our investee's business. 

(1) We support the UN’s 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs). The SDGs comprise 17 goals that range from ending hunger to stemming climate change. The DIF targets 4 goals within this set: SDG3, SDG4, SDG7, and SDG8.
(2) IRIS is a catalogue of generally-accepted performance metrics that leading impact investors use to measure the social and environmental performance of their investments.(3) While loan acceleration is an important protection, we rarely view this approach as an appropriate remedy. We take price in our reputation for highly constructive negotiations with portfolio companies, in which we focus on solutions that preserve our capital while maintaining the stability of our investee’s business.

 

Impact Measurement 3.0… and Beyond

As for many impact investors, impact measurement is a balancing act between our desire to deeply understand the nature of our impact and the ability of our investee partners to track and report on meaningful metrics.  One way to think about impact measurement is as a spectrum from the most practical to the most rigorous approach, as illustrated below.

Impact Measurement Spectrum

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At this stage, we have made good progress towards measuring the outputs and outcomes of our investment portfolio. However, we remain keenly interested in deeper measurement of social impact and have been actively working with some of our investees to develop tools for assessing causal relationships between our investments and our impact goals. For instance, we recently worked to implement the Progress out of Poverty Index (PPI) methodology at one of our portfolio companies in Mexico. PPI is an innovative way to evaluate a sample of clients before and after they receive services by the organization by using straightforward but revealing questions to track how living standards may have improved. The objective is to understand, from a longitudinal perspective, the impact of our activities on client incomes, lifestyle and overall well-being.

Effective impact measurement will always be one of our most challenging responsibilities. But we believe that by sharing best practices and continuously working to gather better and more meaningful impact data, it needn’t be as daunting as King Arthur’s quest.


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Magali Lamyin, Director of Communications and Development for Deetken Impact

MAGALI LAMYIN

Director of Communications and Development

 

Magali brings extensive market intelligence, business development and marketing experience from her work at the Central Bank of Mexico, the Canadian Institute for Market Intelligence, and the IESE-PWC e-Business Centre in Barcelona. She also co-led national marketing campaigns for businesses in the hospitality and early childhood education sectors for almost a decade before joining Deetken. In her current role, she is responsible for leading Deetken Impact’s communications, marketing and branding strategy. She is also involved in the due diligence process for project selection with an emphasis in Mexico.

Magali holds a BA in Economics from Mexico's ITAM and a Master's degree in Economics from the University of British Columbia.

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Jose Lamyin, Managing Partner Deetken Impact

JOSE LAMYIN

Managing Partner

 

José has extensive experience as a business advisor for clients throughout Canada, Europe and Latin America in mining, telecommunications, and finance. Prior to co-founding The Deetken Group, José worked for Teck Cominco in Peru and Canada and Deutsche Bank in London (UK). José has spearheaded much of the strategic growth of Deetken Asset Management since inception and is currently focused on investment selection.

José received his BS in Engineering from the University of British Columbia and MBA from IESE School of Business (Barcelona). Born in Peru, José is fluent in English and Spanish.

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Alexa Blain, Managing Partner Deetken Impact

ALEXA BLAIN

Managing Partner

 

Alexa is responsible for finance, operations and investor relations at Deetken Impact. She brings over 10 years of experience in financial consulting and asset management, with specific expertise in company and investment analysis, business valuation and securities/corporate finance. Prior to joining Deetken, she spent three years with African Alliance, a pan-African financial services group, where she focused on expanding the firm’s retail financial services operations as well as on the origination and negotiation of new capital. In addition, Alexa has six years of asset management experience with the Canada Pension Plan Investment Board, the Macquarie Group and the Ontario Teachers’ Pension Plan.

Alexa is a CFA Charterholder. She has also completed an MA in Financial Economics and an Honours BA in Economics, both at the University of Toronto.

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Fernando Alvarado, Head of Deetken Impact Sustainable Energy

FERNANDO ALVARADO

CEO

Honduras Renewable Energy Managers (HREM) and Caribbean Renewable Energy Managers (CAREM)

 

Fernando Alvarado leads the General Partner and Investment Advisor of two clean energy and energy efficiency project finance and venture capital funds: Honduras Renewable Energy Financing Facility (H-REFF) and Caribbean Basin Sustainable Energy Fund (CABEF), which he structured and runs with a combined target capitalization of $100m.

Development Investment Banker with 28 years of international credit and investment experience and 18 years of direct experience assessing diversified renewable energy portfolios in Latin America & the Caribbean. He has participated in more than 50 syndicated credit and investment transactions for renewable energy projects in excess of $250 MM. He led the creation, structuring, fundraising, legal closing and portfolio construction of several specialized renewable energy funds.

Costa Rican, based in San Jose, Mr. Alvarado has an MBA in Banking and Finance cum laude from Universidad de Costa Rica.

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Carl Black, Portfolio Manager Deetken Impact

CARL BLACK

Portfolio Manager

 

Carl is a Portfolio Manager with Deetken Impact focused on analyzing and working with MSMEs, social enterprises, and renewable energy developers in Latin America and the Caribbean. His main responsibilities include supporting business development, managing technical assistance projects, leading investment due diligence, and monitoring portfolio performance. Prior to joining Deetken Impact, Carl worked for five years as a consultant, advising public sector clients an non profits in Canada and financial services companies in Latin America. He started his career at the Bank of Canada, where he researched issues related to household and business credit. 

Carl completed an Honours BA in Economics at the University of British Columbia. He also holds an MSc in Economics & Development from the University of Oxford, where he earned distinctions in quantitative and development economics.

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Cristobal Aguirre, Investment Analyst at Deetken Impact

CRISTOBAL AGUIRRE

Investment Analyst

 

Cristobal has over 6 years of experience in the asset management industry, where his responsibilities have ranged from asset allocation and portfolio management to risk analysis and software development. Before relocating to Canada, Cristobal worked as a senior investment analyst in AFP Habitat—Chile’s largest pension fund—where he led the tactical asset allocation and macroeconomic research for emerging markets.

Cristobal is a CFA Charterholder, and completed a BA in Economics at Universidad de Chile.

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Chad Parsons, Senior Investment Analyst at Deetken Impact

CHAD PARSONS

SeniorInvestmentAnalyst

 

Chad has worked as a consultant in business and technology for 20 years – often helping clients with their business transformation initiatives.    He has worked with start-ups, government, and established businesses to further their product and service offerings with a balanced approach.   After pursuing a research degree on leveraging technology for social and economic development; Chad has found a valuable alignment of his background with Deetken’s innovative impact investments. 

Chad completed a BS in Engineering from the University of British Columbia and has a MSc with distinction from the University of Manchester (UK).

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