In 2024, $1.57 trillion flowed into impact investments worldwide, according to the Global Impact Investing Network (GIIN). This represents an average annual growth rate of 21% since 2019. But how does impact investing actually work, and how can we systematically measure and manage its effects? This article takes a closer look.
What is Impact Investing?
Impact investing means using capital to generate both financial returns and measurable, positive outcomes for the environment or society (GIIN, 2024). On the OECD impact spectrum, the approach is located between philanthropy (focused solely on impact) and traditional investing (focused solely on returns). Here, impact is not a side effect but a goal on equal footing with financial performance.
The three core principles of Impact Investing are:
- Intentionality – Investments are made with the explicit intention of achieving a positive social or environmental impact.
- Additionality – The intended impact would not have occurred without the investment.
- Measurability – The outcomes are systematically tracked, assessed, and communicated transparently.
WifOR expands on this approach. Every investment affects society positively or negatively, whether intended or not. In this context, impact-oriented investing means measuring, evaluating, and actively managing societal effects, regardless of the investment focus.
This enables asset managers to reduce negative impacts and enhance positive outcomes according to their objectives. For example, they can prioritize meeting regulatory requirements or fulfilling stakeholder expectations.
Impact metrics: the foundation of impact measurement
Depending on the objective, different indicators are used to measure impact. The Impact Reporting and Investment Standards (IRIS+), developed by the GIIN, serve as a globally recognized framework. Impact investors, funds, and financial institutions around the world apply this set of standardized indicators widely.
Examples of commonly used impact metrics:
Social impacts
- Number of full-time employees with disabilities
- Fair wages
- Risk of labor accidents
Ecological impacts
- Greenhouse gas emissions
- Water use
- Amount of recycled waste
Economic impacts
- Paid taxes
- Expenditures for local providers
- Value added to the overall economy
These indicators are linked to the United Nations’ Sustainable Development Goals (SDGs) for climate protection, workplace safety, and poverty reduction.
How to measure impact
Despite its growing importance, there are still no uniform standards for measuring and valuing impact. Many investors rely on qualitative assessments, scores, or external ratings, which often have limited informative value. WifOR has therefore developed a scientifically sound method to quantify, monetize, and compare the impact of investments.
The method consists of six consecutive steps:
1. Portfolio structuring
First, the investment portfolio is broken down into asset classes (e.g., stocks, bonds, real estate), sectors, and regions. This structure forms the basis for all further calculations.
2. Translation into economic activity
In the second step, the average revenue generated by the invested capital is calculated. A country- and industry-specific factor is used to determine the typical revenue generated by each euro invested. The calculations are based on recognized sources:
- Orbis (for companies and asset data)
- Damodaran (for capital markets data)
- EU KLEMS (for economic production data)
3. Assessment of impacts
Using spend-based multipliers, this assessment determines what effects are linked to economic activity – such as CO₂ emissions or jobs created. The multipliers are specific to each industry and take regional differences into account.
4. Monetization using value factors
In the fourth step, the results are linked to value factors. These indicate the average social impact associated with a certain level of revenue in a particular industry and region. This way, different types of impact can be compared, among them:
- social costs linked to CO₂ emissions
- social costs resulting from labor accidents
- economic contributions through value creations
5. Putting impact into perspective: investment-to-impact ratio (IIR)
Beyond the monetary valuation of individual effects, a ratio can be derived: the investment-to-impact ratio (IIR). It shows how much social benefit or harm is associated with each dollar invested – broken down into social, environmental, and economic dimensions.
For example: “Every dollar invested generates an average of $0.80 in beneficial social value while causing $0.30 in social costs.”
To enable meaningful classification, positive and negative effects within a dimension are not offset but rather reported separately. The IIR thus shows at a glance the positive and negative effects associated with investments in portfolios. However, it does not replace the detailed presentation of the underlying indicators.
6. Portfolio aggregation
Finally, the results are consolidated at the portfolio level. The outcome is a data-based impact profile that quantifies the social impact of the investments in monetary terms, differentiated between positive and negative effects.
WifOR makes the value factors and measurement methods transparent. This ensures clarity about what was measured, why it was measured, and under which assumptions.
Examples for impact investments
WifOR distinguishes between two categories of impact investing. One category encompasses investments with an explicit social or environmental objective. The other one highlights the impact of traditional capital investments.
Classic impact investing: example from the healthcare sector
Impact-oriented investments often flow into projects that promote clean energy, protect natural resources, or improve access to housing, healthcare, and education. A current example: An international development organization is reviewing investments in the African healthcare sector, particularly for strengthening pharmaceutical production capacities.
WifOR’s employment multipliers determine where these investments would have the greatest impact. They show how many jobs can be created through investments in a national industry, using an input-output model with scenario-based forecasts.
Altogether, the analysis reveals substantial differences between countries. In some states, significantly higher employment effects can be achieved with the same level of investment – especially in certain East and Central African countries with high multiplier values. This approach enables to compare impacts and target capital where it creates the greatest value for society.
Extended impact approach: example of index funds
Even traditional investment products that are not primarily focused on impact can be evaluated from an impact perspective. Valuing Impact used the WifOR Institute Sustainability Impact Tool (WISIT) to analyze the 500 largest US companies listed on the stock exchange (the S&P 500). The analysis was based on the index composition in March 2025, supplemented by sales and market data.
The results show that every US dollar invested generates an average of $0.70 in social benefits over ten years. While the figure is measurable, it is significantly smaller than that of targeted impact investments.
Using the overview of indicators in WISIT, asset managers can identify areas where the social impact is high or low. These insights provide the basis for data-driven portfolio decisions and make impact strategically usable even for standard products.
Advantages of Impact Investing for financial actors
Impact investing offers a variety of strategic advantages for financial players – far beyond ethical considerations:
- Supporting strategy development
The structured collection and analysis of positive and negative impact data provides valuable insights for the strategic alignment of a portfolio. Asset managers can use this information to identify where investments generate the greatest social and environmental value – and use these insights to define goals, set priorities, and guide investment decisions. This strengthens the link between impact objectives and investment strategies, while also facilitating communication with internal and external stakeholders. - Improving risk management
The integration of social and environmental impact helps to identify external effects at an early stage. This allows asset managers to better assess and evaluate long-term risks in traditional investments. For example, they can adjust portfolios early on in response to expected CO₂ pricing or new ESG requirements. - Gaining regulatory certainty
Impact data provides transparency on how capital is used, thereby helping to comply with legal requirements such as the EU Taxonomy and the SFDR. Those who measure impact in a structured manner can efficiently fulfill reporting requirements, identify risks at an early stage, and communicate them to supervisory authorities and the public. - Enabling impact-based engagement
Validated impact data provides asset managers with strong arguments – for example, at annual general meetings or in direct discussions with management. This enables decision-makers to initiate concrete changes for the supply chain, emissions, or labor standards, among other aspects. - Promoting product innovation
The ability to quantify impact creates new options for product development such as thematic funds, green bonds, or impact-oriented private equity strategies. Impact data supports precise design and effective market placement. - Securing competitive advantages
Those who consistently measure social impact and integrate it into their investment decisions position themselves as pioneers – towards clients, investors, and regulators. This strengthens their own brand and, additionally, opens up access to new markets. Additionally, it improves the valuation of investment strategies in a competitive environment.
Challenges of Impact Investing
More and more investors want to take social impact into account in a targeted manner. However, in practice, they often lack suitable tools to do so. Many face the question of how to reliably measure, compare, and integrate impacts into existing investment processes without massively increasing operational costs.
A key problem is the lack of standardization. Different assessment approaches and low comparability make it difficult to measure impact consistently, especially for smaller market participants.
This is where WifOR comes in. With our data-driven approach, we lay the foundation for systematically and comparably assessing social impact regardless of industry, region, or asset class.
Our analysis tool WISIT also allows to calculate the impact of investments independently. The aim is to make impact measurable and connectable so that it can be seamlessly integrated into economic decisions. This evidence-based approach is compatible with existing key performance indicator systems.
Conclusion: Impact requires clear goals, comparable data, and transparent methods
Impact investing offers the opportunity to not only measure impact, but to incorporate it into portfolio management and optimization. In traditional impact investing, WifOR’s data and methods provide a robust basis for objectively assessing social and environmental effects. Moreover, our method allows to analyze the impact of traditional investments, such as index funds, based on reliable data.
Impact thus becomes a relevant key performance indicator in the investment process: transparent, traceable, and reliable. Those who use this data can not only efficiently meet regulatory requirements, but also better assess risks and make capital decisions on a sound basis.
