A growing number of investors are allocating capital towards organizations that aim to address social or environmental problems, while also generating financial returns. ‘Impact investing’ includes sectors like microfinance, clean technology, sustainable agriculture, affordable housing and others. As investment activity in these sectors grows, the need for standardization and transparency in reporting in order to allow investors to consider performance across financial and non-financial dimensions has become increasingly evident. Microfinance is perhaps the most developed sector under the impact investing umbrella, and the Microfinance Information Exchange (MIX) has been working for over a decade to develop industry standards and to provide data and analysis on the microfinance sector.

The Global Impact Investing Network (GIIN) is a young organization which has a broad mandate to support the overall growth of impact investing as an asset class.  The GIIN’s Impact Reporting and Investment Standards (IRIS) initiative is modeled after the work of the MIX and is intended to create reporting standards and metric definitions to allow for the aggregation and benchmarking of social and environmental performance data across the asset class.

Both IRIS and the MIX have developed reporting frameworks that integrate financial and non-financial data.  It also happens that both organizations speak the same data-modeling language - XBRL. We both independently settled on XBRL because it seemed clear that XBRL was the direction in which the financial reporting world was moving, and we saw the opportunity to extend this to non-financial reporting.  MIX and IRIS have aligned reporting standards and have spent the last year building a pathway to ensure our two platforms can share information on an ongoing basis, a project made easier because we speak a common language.  Here is a little more about how this project works:

On the data sharing front, we have developed a mechanism to allow our platforms to communicate with one another on an ongoing basis.  Here’s how the process works:

1. Microfinance institutions (MFIs) maintain information related to their services in audited financial statements, regulatory reports, ratings reports, poverty assessment tools, and other documents.
2. MIX staff collects these data, standardizes and publishes the information on the MIX Market website. During this process, we convert the data to XBRL and tag it based on our taxonomy (an extension of the International Financial Reporting Standards (IFRS), tailored to microfinance reporting standards).
3. Once data from an XBRL document is published on the MIX site, an RSS feed automatically sends the document to subscribers, including the GIIN.
4. Once the GIIN is notified of a new XBRL document, it is pulled into their system and the MIX XBRL is converted into IRIS XBRL so that it can be compiled and analyzed within the IRIS data analysis tool.

This data exchange allows the GIIN to incorporate a comprehensive standardized set of microfinance data into its broader data set that includes information from a range of other impact investing sectors.

It also allows the MIX to provide data on microfinance to the world. Anyone who learns to ‘speak XBRL’ can have a direct line to access and understand that data.

Now that the data is publicly available we look forward to pursuing opportunities to see what else can be done with this data by fluent speakers of XBRL. We know that XBRL has helped to open data and streamline reporting flows within other fields, and we hope this channel begins that process for double bottom-line sectors like microfinance and impact investing.

XBRL is currently being adopted for a number of reporting channels around the world, including for public company reporting to the US Securities and Exchange Commission (SEC). The first phases of the SEC adoption have been successful, with a high level of compliance and good quality XBRL-tagged data for the most part. That said, there is still widespread misunderstanding related to the steps necessary to produce high-quality XBRL-tagged data and whether these files can be relied upon for decision-making purposes.

Common Misconceptions

Many people still feel that tagging of information in XBRL is similar to turning a Word document into a PDF file and that XBRL-tagged data is inherently as accurate as the underlying information from which it was created. This is an inappropriate analogy, because the process of XBRL tagging involves judgment, just as financial statement preparation involves judgment, and there is potential for intentional or unintentional errors that could result in inaccurate, incomplete and/or misleading information. This is a problem, because it is the XBRL-tagged data that will ultimately be consumed and used for decision-making purposes, so the completeness, accuracy or consistency of the tagged data is of paramount importance.

Using submissions to the SEC under the SEC mandatory filing program as an example, another potential misunderstanding is that the XBRL-tagged data is covered by the audit of the underlying financial statements. This is not the case; absent a separate engagement of a third party looking at the completeness, accuracy or consistency of the XBRL-tagged data itself, there is no auditor involvement in the XBRL exhibits at this time. What this means is that the XBRL-tagged data – the data that will be consumed by analysts, investors, regulators and other stakeholders of company filings – may not be the same as the underlying audited financial statements.

The Importance of High-Quality XBRL-Tagged Data

The preceding paragraphs are not intended to imply that the tagged data produced to date is unreliable. As stated up front, with few significant exceptions the XBRL exhibits submitted to the SEC through the first phases of the mandatory filing program have been of high quality, and quality has been observed to increase significantly as companies familiarize themselves with the process. (For more information on common issues, see Staff Observations from Review of Interactive Data Financial Statements and AICPA XBRL Update: Observations and Recommendations for XBRL Implementations for SEC Reporting in the U.S. All companies, auditors and other parties involved with XBRL exhibits submitted to the SEC should familiarize themselves with these documents.) It is still important to note, however, that companies are ultimately responsible for the quality of the XBRL exhibits they submit. The significance of this responsibility will increase over time for two reasons:

1)    The limited liability period for XBRL exhibits expires for all companies two years after the date they are first required to submit XBRL exhibits under the mandatory SEC filing program.

2)    As more and more company data is available to the marketplace in XBRL format, more investors and other stakeholders will begin to consume and rely upon that XBRL-tagged data.

Some have argued that investors today rely on data that is parsed and normalized by data aggregators and therefore potentially much farther afield than the XBRL-tagged data, which is at least intended to mirror the underlying audited financial statements, even if there is no separate auditor involvement in its completeness, accuracy or consistency, and therefore that there is no need or market demand for any additional assurance or related services on the XBRL-tagged data. In my opinion, this argument does not necessarily hold water. First, I believe that if most stakeholders understood this dynamic, they would desire some level of third-party involvement. Second, in the case of XBRL exhibits submitted to the SEC, the company (as stated earlier) is responsible for the quality of the tagged data. Given that the XBRL exhibits are accessible via the SEC EDGAR system and are intended to serve as an electronic version of the underlying audited financial statements, it is logical that users of the XBRL-tagged data will expect the same level of quality as in the underlying audited financial statements.

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What are the interest and awareness levels among investors and analysts in XBRL?

Investment professionals are marginally more aware of XBRL than they were four to five years ago, but there is still lot of learning to be done. Fund managers and securities analysts are generally excited about what XBRL can do for them, but they expect it to be delivered as a packaged product, ready to use. They are waiting for the concept to become more of a practical reality.

To sophisticated investors and other users of financial information, XBRL still looks and feels more like a concept car than one they can drive off the lot. The technology is interesting and promising, but it still feels inaccessible to them. So fund managers and equity analysts continue to work with Bloomberg, Thomson Reuters, FactSet, Compustat, or other solutions that are ready to use and already tie seamlessly to their workflow.

What are the obstacles investors and analysts may encounter?

There are no inexpensive, off-the-shelf software programs available that allow users to pull data from XBRL instances into their (mainly Microsoft Excel) spreadsheets. Among the earliest solutions, we see applications that are designed for the specific use cases of investment professionals, so they could not handle different taxonomies. We also see applications that simply disregard workflow constraints. They may offer a spreadsheet solution with a familiar look and feel, but they are in “the cloud,” where serious financial analysts would never put their models; it raises too many concerns and compliance and the protection of intellectual capital.

For the software industry to produce an inexpensive, off-the-shelf solution – something in the range of $250 – it needs a mass market to economically justify development. In the case of XBRL, there is a market, but it couldn’t be described as “mass.”

XBRL International is ideally positioned to take the lead on promoting or even funding the development of applications for general users – and not just for investment professionals. It takes a visionary approach like those we should expect from XBRL consortia to turn this concept into a marketable reality. The situation feels a bit reminiscent of the advent of the World Wide Web. If users had only been able to view web pages and not work interactively with web content, it would have remained a static, stagnant resource winning no better than a lukewarm reception from consumers.

Are there any other obstacles that concern you?

XBRL also suffers from a bit of an image problem. At first glance, it looks a lot more like a regulatory initiative than a technological solution. XBRL International’s success stories describe simple, upstream processes, focusing on a number of entities that send their data into a central database, and that’s the end of the story.

If that was the true intention of XBRL, we could have used plain ASCII. What about downstream processes? The corporate reporting supply chain – that is how those of us in the investment world would see it – does not end in the database of a regulator.

To my knowledge, there are more than 100 XBRL installations in place around the globe. Assuming pools of instance documents exist in each of these installations, who uses these instances? Why is there so little interest in giving users access to the instances? Having users work with XBRL instances is so pivotal, it may be the most significant factor in whether XBRL is ultimately successful. History has demonstrated it is not necessarily the best standard that wins the race, but the one that is most rapidly adopted.