TriLinc’s ESG and Impact Measurement: the IRIS Framework

As a certified B Corp, TriLinc Global supports the high environmental, social, and governance (ESG) standards to which B Corp organizations hold themselves, and the companies they work with, accountable.  TriLinc is a fund sponsor and the majority owner of TriLinc Advisors, LLC, which manages the TriLinc (together, “TriLinc”).  We believe that transparent tracking, analyzing and reporting on the impact of portfolio holdings is a fundamental component of impact investing.

When we were establishing our policies and procedures as an impact fund sponsor, impact measurement systems were in early-stage.  At that time, we elected to use the Impact Reporting and Investment Standards (IRIS) framework for our ESG and Impact screening, measurement, and reporting processes, given that IRIS was emerging as a recognized taxonomy with broad acceptance among impact investors.  In recent years several new tools have launched to help investors evaluate ESG and impact factors in their portfolios.  TriLinc continues to use the IRIS framework for consistency in describing ESG performance.  By using a standard set of impact components, definitions, and measurement formulas, IRIS makes it possible for us, and for fund investors, to measure and compare ESG/impact metrics over time, both within a given fund and across a broader portfolio of investments.

TriLinc’s approach is to track core metrics at the fund level to assess progress in the stated, overarching goal of the fund, and to track company-level metrics to evaluate investees’ specific performance contributions.

TriLinc requires that potential borrower companies demonstrate their intention and ability to self-identify, track, report, and improve on at least one economic, social, or environmental impact objective, using the IRIS framework. TriLinc conducts this ESG and impact assessment concurrently with the credit approval process, as outlined in the diagram below. Specifically, prospective borrowers must adhere to the IFC Exclusion List, provide details on their environmental practices  (e.g. energy savings, waste reduction, and water conservation), employee benefits (e.g. health insurance, capacity-building, and disability coverage) and community engagement (e.g. community service and charitable donations), and select an IRIS metric as its impact objective. TriLinc’s Impact team prepares an Initial Sustainability and Impact Review on each potential investment, which includes information from proprietary ESG and impact screens, an assessment of sustainability risks and opportunities, and identification of relevant watchdog organizations and certifications regarding best practices, among other factors.

Borrower companies provide baseline data and annual updates for the five socioeconomic development IRIS metrics tracked at the portfolio level – job creation, wage increase, revenues increase, profitability increase, and taxes paid – and for their self-selected impact metric(s).  Borrower self-identified metrics include job creation, capacity-building, access to health care, and agricultural productivity, among others.

TriLinc produces an annual Sustainability and Impact Report, which tracks and reports on performance metrics for the overall portfolio and borrower companies.