In 1885, nathaniel mayer rothschild became one the uks first impact investment managers when he established a fund that promised to provide commodious and healthy dwellings for the working class in east london and a 4 per cent return for investors.

But even with the funds success, both for the people living in the affordable homes and for investors, it would take more than a century for the impact market to gain traction.

The term impact investing was coined in 2007 and refers to investments designed to create a positive social or environmental outcome. today the market is estimated to be worth $715bn, according to the global impact investing network, a non-profit group.

As that money flooded in, the sector evolved. the wealthy individuals and philanthropists who once dominated the market have been joined by institutional investors. this has led to a standardisation of how to measure the change being financed.

In 2010, most [investors] used their own systems to track impact outcomes, amit bouri, giin chief executive, wrote this year. now, almost all are aligning around a core group of [impact measurement and management] systems.

A leading system is the giins iris+, which provides data to gauge whether investments achieve their social and environmental goals.

In 2019, the international finance corporation, the private sector division of the world bank, launched a framework called the operating principles for impact management, which goes a step further. for investors to comply with the ifc principles, their information has to be vetted by an external auditor.

In some cases impact measurement can be straightforward, says catherine banat, director of us responsible investing at rbc global asset management, which has launched a $100m fixed income fund to provide loans to home buyers and small businesses in california.

She says that fixed income allows excellent visibility for investors. we can tell every investor every loan that comprises every security that is in their portfolio...you can see who gets the dollars and what they are for, says ms banat.

Where it is harder to see direct outcomes, the extra step of providing impact assurance can help investors trust the data and quell fear of impact-washing.

Independent verification and assurance is exactly what the market needs to increase its scale, says christina leijonhufvud, a managing partner at tideline, a consultancy whose impact assurance service is called bluemark. this is the key to unlocking more capital at scale, she says. you can look at the organic food market or the credit rating agency market and recognise that independent verification and an audit is really important.

The ifc principles also require impact investors to look at every aspect of their investment.

Its very easy to talk about your positive impact...but theres not as much appetite for reporting your negative impact, says allison spector, the director of sustainability, real assets and private markets at nuveen, the us investment manager. but we believe all investments have the potential for both positive and negative impact and increasingly [strive] to be able to reflect that in both what we measure and what we report.

She cites the example of considering whether to invest in a battery company. on the one hand, there is the environmental benefit of putting more electric vehicles on the road, says ms spector, but looking only at reductions in carbon emissions does not give a full picture.

There could be many potential negative impacts around supply chain and controversial sourcing...we are very conscious of toxic waste and employee health and safety, she says.

All of this information goes into a net impact score that is evaluated as part of due diligence. companies that score poorly are not immediately excluded but will be expected to improve in areas that create more harm than good.

The problem with being too strict is that it may exclude some companies that can clean up their act and create positive change. were not letting perfect be the enemy of good, says ms spector.