Quantitative Social Metrics for Impact Investing

I have this nagging feeling of an elephant in the room – in the room of impact investing, I mean.

On the one hand, we’ve made tons of progress.  I don’t just mean progress in terms of more funds being raised and more mainstream attention – though those are both good things.  I mean that it’s become increasingly accepted, conceptually at least, that for an investor to be an impact investor, she must actively intend to create impact, and she must actively measure the impact she is creating.

(E.g. the World Economic Forum report’s recent definition of impact investing as “an investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured.”)

While we’ve made progress on the language, I’m not sure how far we’ve come on the “actively measured” bit – mostly because it’s really, really hard to measure impact.

Let’s not forget what’s at stake here though. We value what we measure.  And what we are able to measure today is financial return.

Think about it:  we have hard, objective measures on the financial side – or we will, as soon as more impact funds realize their returns.

And we have a framework for measuring impact (in the IRIS standards, and in GIIRS ratings) but no agreed-upon standard of what social impact data should be collected and shared by impact funds.  This means that, despite the incredible work of building IRIS and GIIRS, we continue to build an impact investing sector without agreement on what constitutes impact and what minimal data should be collected by impact funds.  If we continue to walk this path, my fear is that (say what we might to the contrary) we’ll inevitably end up ranking and sorting impact funds by the only thing they can be ranked and sorted by – their financial returns.

It strikes me that part of the way forward is by constraining our path.  What if what’s holding us back is too many options, if the Achilles heel of the 400+ IRIS indicators is that they leave even the most well-intentioned impact investor overwhelmed and a bit mystified?  What if part of the way forward is to narrow our search to the most important, most universal, most quantifiable data we can find that will give us one-level-deeper insights into what’s going on underneath the hood.  Quantifiable because this is the only thing that might start to balance the scales and be weighed equally with the financial returns we hope to realize.

For example, wouldn’t it be nice to understand who impact investors are actually serving?  To understand who the end customers are for the companies that make up various impact portfolios?  If this could be objectively assessed, and if we could gather this data easily, this data might start to tell us something beyond what we can find in the glossy prospectuses of impact funds.  We know, of course, that reaching the emerging middle class in urban sub-Saharan Africa and reaching the poor in rural sub-Saharan Africa are two completely different balls of wax, yet gathering data on who a given fund is actually serving has been, so far, nearly impossible.  And until we gather this data, we’ll never begin to properly understand how far market-based solutions can go to reach poor and underserved populations.

This is just one of the areas I’m excited to be exploring with our impact team led by Tom Adams at Acumen – using cellphones and text messages to quickly and reliably understand who end customers are, so that we’ll have the real data capturing who is actually being served across different geographies and sectors.  We successfully piloted this work last year with a Kenyan firm called Echomobile, and we’re rolling it out more broadly across the full Acumen portfolio.  The idea is to use technology, married with smart frameworks like the progress out of poverty index, to make it easier to get data and insights about real impacts on the ground.

I don’t know what these data will tell us, but I do know that the pursuit of easy-to-collect, quantitative data will be a first step towards differentiating the social impact strategies of the myriad impact investors in the marketplace.  And I think this will be part of the way forward.

This video of a talk I recently gave at Acumen’s Investor Gathering explored this idea in more detail, and it starts to outline what the end state of impact investing might be.  Let me know what you think!

This entry was posted in Impact investing and tagged , , , , . Bookmark the permalink.

5 Responses to Quantitative Social Metrics for Impact Investing

  1. JGD says:

    Let me start by admitting first that I a new member and largely ignorant of your work. However, I have spent my professional life identifying “appropriate” things to measure and developing respective measures in idustries. So here is my two cents worth.

    For any investment target/entity,
    (1) Identify exactly who/what will be benefiting [individuals, community, etc], and
    (2) Identify exactly in what way the target benefactor will be benefited.

    I think rather than looking for a broadest possible measure, a key, specific, measurable and narrowly focused measure should do the job.

    For example … Let us say our aim is to help poor in a community by providing women in that community earning opportunities while staying at home by providing them raw material [floor,etc. to make a food product; yarn to knot, etc.]. I would think one can easily measure any increase in the domestic income of affected households and changes in their spending to determine the impact of this initiative.

    As I indicated earlier, perhaps this is too simple minded and my lack of familiarity of the work done by Acumen shows. On that count, “I plead guilty”.

  2. Dear Sasha,

    Nice video. Tight presentation. My only complaint is to please, please, please stop saying this:

    “…mostly because it’s really, really hard to measure impact.”

    I know many accomplished and good people before you have bleated and whined this absolution to peers repeatedly. Apparently there is no end to this hand-wringing, but there should be. And immediately.

    If a potential investment portfolio company doesn’t know exactly who they’re serving I’m quite confused as to why Acumen would give them a dime. It’s EASY and SIMPLE to reveal who you’re helping (your customer) as well as measure any intended social impacts–both as an INVESTOR at the portfolio level and as a social entrepreneur at the operational level expected to deliver gains to individuals and groups in society. Yes, I mean this for ANY DESIRED social impacts, not just the “easy” ones. If you don’t believe me I’ll put my money where my mouth is:

    I’ll wager anyone anywhere at any time $1,000 that I can, within 5 minutes, transition any clear and well-defined ambition for any societal gain in the world into an objectively measurable, verifiable social impact target that all can recognize and unequivocally validate with a yes or no litmus test of occurrence, i.e. 100 disinterested people can unanimously agree either the impact happened, or it didn’t.

    Like Acumen, I’ve successfully targeted and achieved social impacts for hundreds of thousands of people in poor and rural communities, invested in social enterprises, and guided governments, foundations, investors, non-profits, for profits, communities and individuals to do likewise without me for over 20 years–all with a money back warranty on impact results. And honestly, if I can do it and say it’s not hard, then anybody can.

    Measuring is easy when you know how to frame a social impact target.

    The REAL challenge is not social impact measurement. It is whether or not enough investors, entrepreneurs, innovators, consumers and beneficiaries value any so called social impact enough to pursue it. Many social impacts on the ground, like products, just aren’t worth a damn to enough people–even though so called experts, inventors and vested operating interests believe such impacts are meaningful.

    People throughout the industry of creating social goods often confuse meaning with value, but they’re not the same thing.

    A more practical conversation for any IMPACT INVESTOR is not lamenting the dilatory emergence of any standard industry impact index for white collar migrant workers to talk even more abstractions at each other, but rather to expedite portfolio reward decisions and risk mitigation by taking direct responsibility for defining and vetting initial impact investment baselines for value on the ground and in the boardroom:

    1. What priority measures for tracking my investment portfolio success are desired by enough people, such that we will have a great enough probability to achieve significance? In other words, what net positive externalities will be valued by me and enough others to pay for growing such gains in society–is this the best use of our limited time and money available to drive verifiable results towards unequivocal success (whether defined by personal or fiduciary capital)?

    And even if the most obtuse navel gazing Impact Investor can’t start there, they can at least gird their loins and define exactly what investing business they presume to be in, making it clear to all how they wish to advance social good in the world, either betting their capital on:

    2. entrepreneurs intent on making more and better good things come into the world; and/or,
    3. innovators making better ways for more bad things to diminish and/or disappear from the world

    These are not the same pursuits. And the strategic and tactical implications of deploying capital into each of these endeavors are profoundly divergent for investors and innovator/entrepreneurs alike. Either commitment for an investor to pursue social impacts is a “real way” for moving the field forward with both meaning and value.

    Best wishes to you and good luck to Acumen in keeping it simple and clear in discovering how it all can become so much easier to target and scale social impacts to significance.

    Cheers,
    Rob

  3. Iona Joy says:

    Rob, I’d love some examples of what you measure that’s easy and straightforward, and what indicators you use.
    A theory of change that identifies the steps to achieving impact, and identifies which steps are in your control and measurable, and which aren’t, is generally a good start.
    Whilst I applaud the efforts of many (IRIS for instance) to come up with off-the-peg indicators for different sectors, it is worth bearing in mind that not all social enterprises will find that these indicators are relevant to their strategies/theories of change. So we have to leave room for the huge variety of ways that social enterprises tackle social change.
    We’ll be publishing a paper on this later this spring.

  4. Iona,

    There isn’t anything users of my framework can’t measure and then easily find insights on how to improve upon their intended impact results. The framework produces objective information so all users can make better decisions in their day to day work at all levels (communities, intermediaries, investors) and that’s intentional, because I totally agree with your point:

    Yes, there has been too much unnecessary complexity designed into most all metrics, indicators and supposed standardized methods for measuring social impacts. It’s horrible that such impositions either disqualify or require such heavy lifting that they greatly burden groups trying to produce social goods. Unfortunately, even when a popular measurement methodology applies to a domain, it brings zero added value to scaling the positive results groups are already achieving and now onerously reporting–worse, and in most cases, impact measurement overlays are a drag on and greater cost to intermediary group operations (another BOHICA–bend over here it comes again–imposed by funders), and with their imposition increases operating overhead costs, as well as saps energy and enthusiasms out of staff who run on passion in doing the good work… because the pay rate is certainly not the reason they are there.

    Peter Wheeler might recall the roots of what I’d be happy to share with your team now about my methodology–he met me back when he came over to a conference hosted at The Rensselaerville Institute in upstate NY where I was a Director at the time and scaling community programs and public private partnerships domestically. At that time we brought Peter and the Lottery Commission executive over to show them how we used outcome metrics and frameworks to drive impacts on the ground with UK government ministries and the voluntary sector. That was when we were working more extensively with our UK partners, back in the day.

    I’ve been spending most of my time with university students around the world as of late, since they’ve more an appetite to try new things that are simple and use them with people on the ground than do us professionals and grizzled veterans who prefer to mostly push paper and complex ideas at each other. Haha!

    I’d love to walk you and your team through the framework using your own priority examples so that it’s more meaningful and understandable in living context. Especially since London is one of my favorite cities. Let’s do it!

    Cheers,
    Rob

  5. Pingback: A Modern-Day Salon | Boston

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s