Initiative
G8 - Impact Measurement Working Group

Seven Guidelines for Measuring Impact Investing ...

Burgess COMMENTARY

Peter Burgess

Seven Guidelines for Measuring Impact Investing

The impact investing space is growing and benefitting an increasingly diverse array of areas including financial services, agriculture, healthcare, housing, energy, and more. Expanding too is the number of impact investing organizations incorporating impact measurement as part of their investment activities. As more players enter and the industry matures it’s even more important that the industry embraces the capture of impact data and assessment of progress against stated goals. This information validates the industry, helps investors manage investee companies, and improves investor and investee strategic decision-making. It also positions the industry to convince funders, especially new ones, to mobilize additional capital.

Last year the G8 created the Impact Measurement Working Group as part of its Social Impact Investing Taskforce. A few weeks ago the group released its “Measuring Impact” report, which includes seven guidelines for impact measurement and five case studies of how investing organizations have put the guidelines to good use. The initiative by the G8 reflects an elevated priority and the development of the industry.

The seven guidelines are adaptable across contexts and align with industry best practices, such as the European Standard for Social Impact Measurement. The report, guidelines, and case studies were developed through a six month research and consultative process which included a review of 60 industry publications and interviews with 45 experts and practitioners in impact measurement. Here are the guidelines with supporting information from the case studies.

Set Goals: Articulate the difference you seek to make. Clear, measurable goals define investor intent, guide action, and create a reference point for judging progress. Goals should link closely to the investor’s investment thesis or theory of value creation.

Bridges Ventures, a fund manager investing in education, transport, and health in the U.K. and U.S. co-develops impact goals with its investees. Bridge has four outcome themes (education and skills, health and well-being, sustainable living, and underserved markets), and each of its funds is designed to achieve specific impact objectives that align with one or more of them. These objectives help determine which impact indicators are employed. Bridge works with investees, including via collaborative workshops, to develop impact goals, and incorporate related indicators.

Develop Framework & Select Metrics: etermine what metrics you will be holding yourself accountable against. Crafting an effective framework with corresponding metrics will outline which data will be collected. Frameworks should include the logic of how data will be applied to the portfolio and should consider the needs of all stakeholders involved.

In 2013, the New York State government launched a Social Impact Bond to improve employment and reduce recidivism among high-risk, formerly incarcerated men. The metrics, developed with assistance from the law firm Jones Day and the Harvard Kennedy School, measured progress against: the average number of days incarcerated per person during the observation period; income in the fourth quarter following release from prison; and the number who started a transitional job during the observation period. The impact of the intervention is calculated using a randomly controlled trial (RCT).

Collect & Store Data: Collect and store the data you need to determine your progress. Best practices in data collection and management lead to improved data integrity, the ability to measure progress, and low reporting burdens. Planning data collection and management requires considerations for all parts of the data ecosystem – information technology, tools, resources, human capital, methods used to obtain and keep track of data, etc.

Investisseurs & Partenaires (I&P) invests in SMEs in 14 countries across Africa. I&P works with investees to put in place “sound ESG and impact data management procedures,” with an emphasis on reliable data collection and storage. Investees report impact data on an annual basis.

Validate Data: Validate that the data you collected is of sufficient quality. Data should be presented in such a comprehensive and digestible way that calculations can be checked and processes reviewed.

Oikocredit, based in the Netherlands and investing in microfinance globally, validates impact data at multiple levels. Regional managers validate country data before it is sent to the global office, which then validates the data again before it is approved for analysis. Ensuring that data is sound is needed to assess individual investments as well as portfolio performance. Oikocredit has also obtained third-party impact data validations, by M-Cril in 2009 and Planet Rating in 2013.

Analyze Data: Distill insights from the data you collected. Strong data analysis and findings can have a big role in steering investment decisions and determining how capital is allocated. Conducting analysis using standardized, objective processes helps findings be widely understood and actionable.

One Acre Fund supports small-scale farmers in East Africa by offering inputs, flexible financing and agricultural training. The impact goal of One Acre’s support is an increase in annual profit of $135 per farmer. One Acre analyzes results against this mark and also studies the data across districts, crop types, and countries to better understand agricultural dynamics and success factors.

Report Data: Share your progress with your key constituents. Progress reports should be evidence-based. Helping stakeholders understand progress and engage with an organization’s activities supports every step of impact investing.

Oikocredit provides performance reports, webinars, and workshops to its partners. The group also has a new dashboard and produces an annual Social Performance Report that shares aggregate partner performance against key metrics.

Make Data-Driven Investment Management Decisions: Identify and implement ways to strengthen your investments and operations. Incorporating data analysis findings as well as stakeholder feedback and recommendations on data can be a source for continuous improvement.

I&P conducts seminars twice a year with its investment teams where impact data and its implications for strategy and practices is discussed. Insights from these seminars might enable investees to achieve greater impact from their work and improve measurement approaches. They may guide I&P in seeking new investment opportunities that will further impact goals.

For more information on the working group’s research on measuring impact, click here.

For a snapshot of the impact investing industry, looking at the state of the industry and projected trends, click here.

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Microfinance Equity Investing: Different Context, Similar Issues