Measuring Impact

If entrepreneurs and investors choose to measure and report on impact metrics specific to the company, they need to consider whether to develop completely customized metrics or to use standardized frameworks including IRIS and Toniic SDG Impact Theme Framework. The parties may also want to think about whether an independent audit of impact performance would be desirable. In addition to, or in lieu of, measuring and reporting on company-specific impact metrics, the parties may choose to evaluate and/or certify general social and environmental performance against third party standards.

Parties will need to agree on the set of metrics to measure the company’s impact performance, and a schedule for reporting actual results. Measuring impact can be difficult, so the parties should be careful to ensure that the metrics they choose to track accurately reflect the outcomes they’re seeking to achieve.

Metrics may be completely customized or based on publicly available frameworks. The most widely used public framework is IRIS, an online catalog of social, environmental, and financial performance metrics managed by the Global Impact Investing Network (GIIN)

Sample language: The Company and the Investors have defined a set of metrics to assess the Company’s performance in [describe impact goals], which metrics are described in [Exhibit X]. [As long as the Investors hold at least X percent of the Shares purchased] OR [During the term of the Loan], the Company shall deliver to the Investors, within X days following the end of each [reporting period], a report setting forth [the metrics] OR [the Company’s progress toward each impact milestone] described in Exhibit X.

AUDITING IMPACT REPORTS

Similar to a financial audit, an impact audit uses a third party to verify a company’s reported performance against its agreed-upon impact metrics. This sample language assumes that impact metrics and reporting requirements are defined elsewhere in the term sheet.

Mandatory audit

Sample language: [As long as the Investors hold at least X percent of the Shares purchased] OR [During the term of the Loan], each Impact Report described in the preceding paragraph shall be audited by a third party organization with relevant expertise, [selected by the Investors and reasonably acceptable to the Company] OR [agreed upon by the Investors and the Company]. Costs of the audit shall be borne by the Company. If mutually agreed, the findings of the audit may be publicized by the Investors and the Company.

Optional audit language

Sample language: [As long as the Investors hold at least X percent of the Shares purchased] OR [During the term of the Loan], the Investors may require that the Impact Report described in the preceding paragraph be audited by a third party organization with relevant expertise, [selected by the Investors and reasonably acceptable to the Company] OR [agreed upon by the Investors and the Company]. If an audit is requested more frequently than once every [three] years, then the investors shall pay for the audit, unless the audit reveals substantial reporting errors. If mutually agreed, the findings of the audit may be publicized by the Investors and the Company.

MEASURING GENERAL SOCIAL AND ENVIRONMENTAL PERFORMANCE

In addition to or in lieu of company-specific impact metrics, the parties may agree to assess social and environmental performance against standards set by a third party organization such as GIIRS (Global Impact Investing Rating Service), a ratings tool that assesses overall social and environmental performance. Other standards for overall social and environmental performance include the Ceres Roadmap to Sustainability and the Global Reporting Initiative

Sample language: [As long as the Investors hold at least X percent of the Shares purchased] OR [During the term of the Loan], the Company shall [annually complete the GIIRS Ratings Process] OR [describe the time period and define the standard for overall social and environmental performance measurement].

CERTIFICATION BASED ON GENERAL SOCIAL AND ENVIRONMENTAL PERFORMANCE

Entrepreneurs and investors may agree that a Company’s overall social and environmental performance be assessed and certified according to a recognized third-party standard. Companies with a B Corp certification, for example, must measure their performance against a set of standards set by the nonprofit B Lab.

If the company has not yet been certified by a third-party at the time of investment, investors and entrepreneurs may agree that the company will certify within a certain period of time after investment. If the company is certified at the time of investment, the founders may ask that investors commit to supporting the certification over time.

Certification after deal closing

Sample language: The Company shall seek to achieve certified B Corporation status within [time period] after the Closing, and shall maintain that status for as long as the Investors hold at least X percent of the Shares purchased during the term of the Loan.

Maintaining Certification

Sample language: The Investors acknowledge that the Company is a certified B Corporation, and to the extent possible under law, shall act in conformity with the Term Sheet for Certified B Corporations that the Company has entered into with B Lab. The Investors shall agree to take any actions reasonably proposed by the Board in order to meet the requirements of and to continue to operate as a B Corporation.

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