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A Smart New Way to Rate Socially Responsible Businesses

When we want to support responsible companies. A new rating system helps investors know which ones are the real deal.

Better World Books sells used books. Nothing special there. But how it does it deserve more praise. Better World is a social enterprise that has put over $9 million in literacy and library programs around the world, minimized its carbon footprint with clever offset incentives to customers, and has been able to treat its employees damn well. While all of this may garner extra business from conscious consumers, it's a different story when it comes to financing from investors.

Better World is a for-profit company. It has an explicit goal of doing good in the world, but to grow it needs investments, not donations. Investors, though, can be a tough bunch. They need metrics, analyses, and audits before pumping millions into a young company. Even the growing class of "impact investors" who demand social impact along with their financial return want all of that... all that and more actually.

Thanks to a new rating system for socially responsible companies called GIIRS (pronounced "gears"), it just got easier for companies like Better World to grow faster and do more good in the world. GIIRS, the Global Impact Investment Rating System, will rate companies on social, environmental, and community impact in a system designed especially for investors. As Beth Richardson, the director of GIIRS, put it, “we can’t invest for impact until we measure impact."

When a social enterprise like Better World Books turns to an investment fund for capital and says, "hey, we're awesome, we make money and we have positive social impact," investors will often reply, "prove it." Until now, there hasn't been a standard response. Every company measures impact its own way. Better World can furnish a balance sheet based on standard accounting practices for the profit part. But to tout its positive impact on employees, or its effect on literacy levels is a lot tricker.
GIIRS aims to fix that, allowing impact investors to compare the social impact of companies they may want to fund. GIIRS is still rolling out, on pace for a full launch in September at the Clinton Global Initiative, but starting last week, GIIRS opened the doors to any company that wants to get rated.

Impact investing is a growing field but, Richardson says, "there still isn’t a good definition of what it means to be an impact investment… GIIRS allows you to declare yourself an impact investment… in a way that is comparable to peers." The ratings are designed by the same folks at B-Lab that run B-Corporation certification.

"It’s a rating, not a certification," Richardson cautions. "Just because you've been GIIRS rated doesn’t mean you’ve done well. You might have only gotten one star." Richardson adds that the actual stars won't be assigned until the official launch. Companies do get a score though. It’s up to the investors to decide what scores meet their own standards, and what company has the right mix of profit potential and social impact.

Better World Books is one of the companies that has already been GIIRS rated and gets investments from funds that take GIIRS ratings into account. Richardson explained one way GIIRS helps businesses like Better World is in reporting to those funds. "We hope that GIIRS brings efficiency to the reporting process. In that there’s one report they can use for multiple funds." She said one company GIIRS reviewed received investments from three different impact investing funds. Being GIIRS rated let them send one report to all three investors, instead of three separate ones, freeing time and resources at the company.

"We hope we are helping impact investing grow and that money and investment gets to the right companies," Richardson says. Companies can start the assessment process on the GIIRS website.

At the full launch in September, several funds will announce a plan to require GIIRS ratings of the companies they invest in, creating an incentive for all manner of start-ups and growing social enterprises to sign on and verify their impact. If the funds have their way—and it's an impressive pilot group of 25 funds—GIIRS will become the industry standard for impact investors looking for hard metrics.

Illustration by Dylan C. Lathrop

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