Measuring Effectiveness: Roadmap to Assessing System-Level and SDG Investing

Steve Lydenberg is founder and CEO and William Burckart is president and COO of The Investment Integration Project (TIIP). This post is based on a TIIP report by Mr. Lydenberg and Mr. Burckart.

As responsible investment in its various forms [1] makes increasing inroads into the investment community, the question of how such investors set their goals and measure their progress toward these goals is of ever greater importance.

As to their financial goals, the answer is relatively clear: traditional investors integrating environmental, social and governance concerns into the security selection are seeking either competitive or enhanced returns, while investors with a philanthropic mission may be willing to accept concessionary returns or combine conventional investments with philanthropic activities.

But what about their social and environment goals? Aside from vague statements about “doing good while doing well” or “investing in a better world,” how clearly have investors delineated their specific goals? And what metrics do they have to measure their progress toward these goals? Equally important, as increasing numbers enter the field what benchmarks can help answer the question: who is or is not doing an effective job?

Not surprisingly, a number of new studies are starting to tackle these challenging questions.

  • The University of Cambridge Institute for Sustainability Leadership’s In Search of Impact: Measuring the Full Value of Capital provides “a framework to help the [investment] industry measure its non-financial impact.” [2]
  • The Global Impact Investing Network published The State of Impact Measurement and Management Practice in late 2017 to provide “critical data and transparency regarding IMM [impact measurement management] enabling investors to better understand this core element of impact investing.” [3]
  • A coalition of 700 launched its Impact Measurement Project website “relevant to anyone looking to measure and manage their [investment] effects on people and planet” at that same time. [4]

Moreover the substantial uptake of the United Nations’ Sustainable Development Goals (SDGs) by the financial and corporate communities has in effect posed for investors the question: can they elevate their impact measurement from a simple enumeration of achievements tied to specific investments (e.g., number of affordable housing units created, kilowatts of energy saved, this or that corporate policy changed) to assessment of progress being made toward achieving these overall system-level goals? Simply declaring “alignment” with the SDGs is not sufficient unless that alignment can be shown to contribute to actual progress in achieving their overall goals. It is not satisfactory, for example, to report only on funding of a renewable energy project while ignoring the fact that little progress is being made in reining in rising levels of greenhouse gases in the atmosphere.

In March of this year, the Investment Integration Project published its report Measuring Effectiveness: Roadmap to Assessing System-level and SDG Investing. Drawing on the work of system-dynamics thinkers such as Donella Meadows, [5] the report focused on the questions of how investors could set goals that would have substantial impact at system levels and what metrics could meaningfully be used to measure those impacts. It made two basic observations.

First, to increase their effectiveness, goal-setting by investors can focus on the paradigms operative at system levels. Paradigms are “philosophical and theoretical frameworks within which we derive theories, laws and generalizations.” [6] As a driving force within complex systems they are a primary contributor to the output of the system. To change the output of a system with a reasonable degree of consistency, one often must change the paradigms that it operates under. The more essentially that paradigm shift takes place, the more likely the system is to consistently produce a different output.

For example, in the case of climate change the current challenge stems not simply from the fact that fossil fuels emit greenhouse gases, but from the fact that our global economic system is so dependent on fossil fuels that it cannot adjust rapidly enough to prevent climate change from occurring. It therefore makes sense to change our paradigm for energy production not simply to one relying on a renewable resource, but to one that encompasses a diverse range of renewable sources, so as not to find ourselves again in a situation of inflexibility due to overdependence on a single source that might end up posing serious unanticipated challenges.

Second, investors can best measure their impact at a system level in general, and on system-level paradigms in particular, by assessing their potential to have influence within the system. Within a complex system multiple actors and factors are inevitably in play. Being able to demonstrate a causal relationship between a specific investor input—or any other single factor—and a fundamental paradigm shift is unlikely. The influence of multiple parties, however, in bringing about system-level changes is frequently apparent. For this reason, we focus on the concept of influence and the ability of investors to maximize and assess their potential to create influence as an indication of impact.

To take another climate-related example, in 2017 the Global Investor Coalition on Climate Change, with its more than 270 investor-members around the world, launched Climate Action 100+, a five-year project committing investors to collaboratively engage more than 100 of the world’s largest greenhouse gas emitters around the world using the framework for reporting and reductions developed by the Task Force on Climate-Related Financial Disclosure, itself the product of a worldwide consultative process. Through this broad-based effort, these investors focusing on the largest emitters substantially increase their chance to shifting practice—and the working paradigm for corporations in general—toward the substantial reduction of such emissions.

The generally accepted measures of corporate social responsibility currently promulgated by such organizations as the Sustainability Accounting Standards Board and the Global Reporting Initiative tend to be focused on specific, narrowly focused goals, whose attainment can be measured in relatively quantifiable indicators of past performance—generally speaking, modeled on and akin to the accounting measurements developed for financial metrics. These will inevitably differ from descriptions of how investors might set about tackling paradigm shifts and increasing their potential for influence at systems levels.

To set goals with relation to paradigm shifts, investors will need to start with an assessment the current paradigms relating to the system-level challenges with which they are concerned and develop a vision of what alternative paradigms would produce less problematic results. With a clear definition of both old and new paradigms in mind, investors can then develop with a reasonable degree specificity goal or milestones along the road in the shift from the one to the other.

These measurements and investors’ reporting on them will necessarily look different from current impact reporting formats and are still basically uncharted territory. Much progress needs to be made in these areas, but it is increasingly clear that in the complex world of the 21st century, paying attention to the interlocking systems that support all of our activities, including our investments, and how to measure and management their risks and rewards will be a challenge we need to face head on.


1The vocabulary current at various stages of the evolution of this approach has shifted over the past four decades, with “Socially Responsible Investment” and “Ethical Investment” being most commonly used in the 1970s and 1980s. In the 1990s, vocabulary emphasizing the role of the environment as well was introduced including “Environment, Social and Governance (ESG) Investing,” “Triple Bottom Line Investing,” and “Sustainability Investing.” More recently the term “Impact Investing has found particular popularity with its stress on small-scale sustainability funding—and increasingly the range of differing, but closely related practices encompassed by these terms is referred to most simply as “Responsible Investment.”(go back)

2University of Cambridge Institute for Sustainability Leadership. In Search of Impact: Measuring the Full Value of Capital (Cambridge, U.K.: University of Cambridge). May 2016:3. (go back)

3Abilash Mudaliar et al. The State of Impact Measurement and Management Practice (New York, NY: Global Impact Investing Network) December 2017:(go back)

4See the “Home Page” section of the website of the Impact Measurement Project at Last visited on March 30, 2018.(go back)

5Donella Meadows. Thinking in Systems: A Primer. Diana Wright (ed). (White River Junction, Vermont: Chelsea Green Publishing Company) 2008.(go back)

6Simon Bell and Stephen Morse. Sustainability Indicators: Measuring the Immeasurable? Revised Edition. (London: Earthscan) 2008:5).(go back)


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