Enhancing Characteristics | Impact Performance Reporting Norms

The enhancing characteristics are comparabillity, verifiability, timeliness, and understandability. They enhance the usefulness of information that is both relevant and faithfully represented.

Comparability

Comparability enables users to find similarities or differences between two items with regard to one or more attributes. Linking performance to widely used taxonomies of goals or themes, disaggregating and analyzing data based on stakeholder characteristics, including information across the five dimensions of impact, and using and referencing standardized metrics can enhance comparability and forestall false equivalence for report users.

The Reporting Norms follow the Conceptual Framework in viewing comparability as an enhancing, rather than fundamental, characteristic of useful information about impact. Information can be relevant and faithfully represented – and hence useful – without being comparable.

The Conceptual Framework further states:

“Users’ decisions involve choosing between alternatives, for example, selling or holding an investment, or investing in one reporting entity or another. Consequently, information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date.
Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. Unlike the other qualitative characteristics, comparability does not relate to a single item. A comparison requires at least two items.
Consistency, although related to comparability, is not the same. Consistency refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities. Comparability is the goal; consistency helps to achieve that goal.
Comparability is not uniformity. For information to be comparable, like things must look alike and different things must look different. Comparability of financial information is not enhanced by making unlike things look alike any more than it is enhanced by making like things look different.”

Comparability enables users to find similarities or differences between two items with regard to one or more attributes. Attributes could be ideas or “constructs” such as sectors, geographies, themes, stakeholder characteristics, dimensions of impact, or goals. This is termed “construct equivalence”. At a more granular level, similarities and differences can also be assessed through usage of standardized metrics, termed “measurement equivalence.” Financial accounting and reporting includes elements of both. The emphasis over time has shifted from a focus on measurement equivalence toward a greater emphasis on construct equivalence.

Preparers can enhance comparability and forestall false equivalence in many ways:

Linking performance to widely used taxonomies of goals or themes (e.g., United Nations’ Sustainable Development Goals, Global Impact Investing Network’s IRIS+ thematic taxonomy);
Disaggregating and analyzing data based on stakeholder characteristics;
Including information across the five dimensions of impact; and
When applicable, using and referencing standardized metrics.

Comparisons based on only one or two dimensions of impact (for instance, the number of people reached) in the absence of the others (for instance, the degree to which stakeholders were underserved, type and depth of impact on each person, the significance of that impact to them) are unlikely to provide a faithful representation of impact. Unidimensional data about scale of impact prevents users from making comparisons that take stakeholder-specific, contextual, and causal considerations into account.

This challenge is compounded as enterprises and investors understandably tend to include information about the dimensions of impact on which they are relatively stronger than peers and exclude information about the dimensions of impact on which they are not. Users’ need for comparability provides a rationale for preparers to report across all the dimensions of impact, not just those that are central to preparers’ goals or that cast the preparer in a favorable light.

Finally, reports that follow a consistent structure and format can be more easily compared. Preparers are further encouraged to publish reports in a machine-readable format for users to easily incorporate into their systems.

Verifiability

Verifiability means information, or the inputs used to derive it, can be checked and confirmed.

The Reporting Norms follow ESRS 1: General Requirements that:

“Verifiability helps to give users confidence that information is complete, neutral and accurate. [Impact] information is verifiable if it is possible to corroborate either such information itself or the inputs used to derive it.
Verifiability means that various knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.”

Direct verification might involve commissioning appropriate research relating to the affected stakeholders and/or aspects of the natural environment. Indirect verification might mean checking the calculations and methods by which source data were aggregated and analyzed. Although some aspects of impact performance may not be directly observable (e.g., counterfactual scenarios), evidence as well as the rationale by which that evidence is used and/or the process of how that information was created can be documented and reviewed.

Installing a fund- or firm-level accountability mechanism, or participating in a mechanism shared with peer institutions, are all ways to collect material information directly from stakeholders to verify that all material negative impacts have been taken into account. Reporting entities are recommended to follow evolving industry practice, including establishing effective grievance mechanisms and corresponding complaints registries, to monitor and verify the impact risk and performance of investees and engage with them to address unexpected events related to impact.

Timeliness

Timeliness means information is available at a frequency that meets users’ needs.

Considerations of timeliness are similar for impact performance reporting as for financial reporting, with the addition that material adverse impacts are best disclosed and responded to promptly to mitigate harm.

Existing standards recommend that investors publish impact performance reports with the same frequency as financial reports. This would typically be at least annually. In some cases, preparers may determine that a different frequency is appropriate. For many investors, there may not be a need for quarterly impact updates, so long as any material information that arises is communicated in a timely fashion.

Understandability

Understandability means information is presented clearly and concisely in a way that users with reasonable knowledge can understand. Impact performance reports can avoid generic or duplicative information while still presenting a complete picture. Information that is intrinsically complex or difficult to understand should still be included if omission would compromise relevance or faithful representation.

Clarity and concision make information easier to understand and thus more useful. Concise impact performance reporting does not duplicate information and avoids generic information that is not specific to the preparer.

Preparers are encouraged to strive for understandability, but not at the expense of relevance or faithful representation. This is because faithful representation is a fundamental characteristic of useful information, whereas understandability is an enhancing characteristic. The Reporting Norms follow the Conceptual Framework that:

“Some phenomena are inherently complex and cannot be made easy to understand. Excluding information about those phenomena from financial reports might make the information in those financial reports easier to understand. However, those reports would be incomplete and therefore possibly misleading… At times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex [economic] phenomena.”

Clarity requires that enough information be presented to explain context and connections between related information and to provide a complete picture of impact performance. In some cases, users may wish to engage third parties to aid in the interpretation of complex information.

Preparers may wish to consider creating additional summaries suited to the needs of stakeholders and civil society organizations. Preparers or users may seek independent review of these summaries to ensure that the content does not materially differ from that in the impact performance report and is not misleading.

Guiding Principles Fundamental Characteristics

Overview What to Report

How to reportEnhancing Characteristics

Comparability

Verifiability

Timeliness

Understandability