One of the major challenges surrounding the work we do in the impact investing space is measuring the actual impact we create and making the investor feel the importance and need for the impact assessment. It is a rather daunting task to assess social change, when “impact” is a fuzzy concept to quantify.
[Read my earlier post 10 impact terms that you must know to understand the basics of measuring impact in impact investing.]
I was having an interesting exchange with a friend recently who is a human rights lawyer on why it is so difficult for people to support human rights and social justice work.
Here is part of the exchange:
“….I agree with your analysis on supply, demand and innovation of social justice analysis. But the big question is what can we do about it? One of the biggest lessons I learned as someone who spent a life time trying to promote social good in a sustainable way, is that you can make people care only if the situation/project impacts them. In other words, if the bottom line is innovation, what will drive change and for that innovation to happen we need money, then how can we get that money (how can we make the funders feel the impact)? Again, I approach the solution in a very practical way. At IIX, we can get investments done for social good because we effectively link risk with social good. Risk is a very powerful word and concept in finance. Trillions of dollars move around the globe based on ‘risk’, anyone who can ‘manage’ risk and demonstrate that somehow their work will mitigate risk can work the system to their advantage.
Social justice is a key component for Maslow’s hierarchy of needs and we need to effectively high light that. At Shujog, we link Maslow’s hierarchy of need with our impact assessment measurement and that in turn is linked to the risk associated with the investment. And somehow it works.
When you are talking about non-existent/deficient/corrupt/unjust legal systems in the developing countries, the system will not change because it works for the people in power. The only way you can change the system is if you get the people in power torealize that they need to embrace innovative investment opportunities (that indirectly changes the justice system) to protect their own interest.
Anyway, this is the view from the field and we see changes happening. The key here is to push on change, do it outside the boundaries and always have financial incentives attached to it….”
In other words, we need to make the funders feel that impact assessment is an integral part of measuring risk and that is exactly what the key is in unlocking private sector capital.
During my time teaching at the Lee Kuan Yew School of Public Policy, at the National University of Singapore, I researched what works and what doesn’t when it comes to assessing impact. Shujog’s approach to impact assessment is a product of my past experiences and research. Our bottom-up tailored methodology is a comprehensive, analytical approach that is applicable to all types of organizations, their level of maturity, and investment needs.
In fact, after spending years researching the many methodologies, tools, and frameworks used in social impact measurement, a fundamental lesson surfaces:
Impact measurement is critical in getting innovators to move beyond the mere intention of doing good towards creating valuable and accountable impact. In order to understand progress and achievements, we must be able to assess it and demonstrate how doing good mitigates financial risk
To ensure that impact transcends just words and pictures, it is critical that socially-minded organizations adopt structured impact assessment processes for the following reasons:
- To quantify and communicate value creation: Impact Assessments act as a standardized and credible measure of an organization’s social and environmental impact, and help to prove the value of an organization’s progress and success. They also form a valuable tool to communicate impact to key stakeholders by concretely demonstrating impact not only in words but in action and quantifiable outcomes.
- To link with impact: You don’t even need sophisticated data analysis on this. Common sense and our experience in closing dozens of deals show that entities that have the highest impact are also the most integrated with their communities and have the most stable operations. All this in turn significantly mitigates risk. Risk management is a key issue with any potential investor.
- To facilitate fundraising: By calculating a Social Return on Investment (SROI) and attaching a dollar value to social and environmental impact, Impact Assessments help high-impact organizations raise capital from impact investors or donors who value social and environmental returns.
- To underpin marketing: Impact Assessments contribute to reporting and allows for clear communication of impact to an organization’s employees, partners, customers and prospective funders. In this way, social performance is transparent and the organization can be held accountable for its performance.
- To inform decision making and enhance future impact: Impact Assessments provide organizations with valuable information on an on-going basis, and can be used as a management tool to optimize operational decisions to maximize both social and financial returns. For investment portfolios, Impact Assessments allow organizations to determine the relative performance of grantees or investments, and help guide critical decisions on allocation of scarce resources.
Often, we may resist or feel anxious about putting an economic value on positive impact created, preferring instead to focus on the good intentions driving our activities and the humanistic stories that derive from them. However, without proper measurement and communication, any claim of social impact will remain lacking in real depth or meaning.
It is essential that all initiatives aimed at creating social value recognize and embrace the importance of impact measurement to demonstrate success, quantify value creation, increase accountability and transparency, and justify the overall value proposition of their activities.
Tune in next week as I explore another facet of the impact assessment universe – the disparate elements involved in weaving a compelling impact story.
IIX Founder & Managing Director
Originally Published on linkedin.com