Impact investing has made real progress in measuring performance. Most funds today report two things:
Financial returns
• IRR
• revenue growth
• exit multiples
Impact metrics
• patients served
• households reached
• emissions avoided
But these are still two separate systems. A portfolio company might generate a strong IRR but deliver limited welfare gains. Another might create significant health or environmental benefits but underperform financially. Without a common unit, it’s hard to compare these trade-offs.
What if there’s a way to measure both together?
The idea behind impact-weighted accounting, developed at the Harvard Business School, is to integrate impact into financial performance by assigning monetary values to social and environmental outcomes.
Conceptually: Impact weighted IRR = Financial return + monetized social value
In sectors like global health, this could involve translating welfare metrics, such as averted DALYs, into economic value using established health economics approaches.
Instead of reporting impact separately, it becomes part of the core performance metric.
Challenges to doing this:
• Measuring welfare outcomes consistently
• Monetising social value (e.g., value of a life year)
• Ensuring transparency in assumptions
• Aligning with LP reporting expectations
They explain why most impact reporting today still focuses on outputs rather than monetised outcomes. Despite the challenges, the question is worth asking.
That said, impact-weighted IRR doesn’t need to replace traditional IRR. But it could serve as a complementary lens, helping investors understand not just how capital performs, but how much value it creates for society.
