Understanding Social Impact Assessment

There is a common thread that holds together those who work in the development sector: creating social change, creating an impact. Donors, investors, practitioners, governments, enterprises — they are all concerned about the change they effect. It is after all their raison d’être.

It seems ironic, therefore that measuring or understanding impact is a concept that is rather nebulous, often secondary, and sometimes scoffed upon. Part of the reason might be that their isn’t a widely accepted way to measure impact, since every organization finds value in using a particular system, as do each set of investors. Sometimes enterprises themselves don’t see value in spending time on measuring impact, preferring instead to just “get on with the job.”

As an investor in social enterprises, Villgro Innovations Foundation is among several other investors which could potentially find value in not just measuring impact, but shifting to a more strategic form of investing – impact investing

According to the Global Impact Investing Network(GIIN), “Impact investments aim to solve social or environmental challenges while generating profit. Impact investing includes investments ranging from producing a return on principal capital to offering market-rate or even market-beating financial returns.”

It is important to contrast Impact Investing as defined above from the concept of Socially Responsible Investing (SRI). The latter employs a method of “negative screening” – avoiding bad or harmful investments. Impact investing on the other hand seeks to invest in companies with the aim to harness their power of enterprise.

A recent Monitor Institute study, “Investing for Social and Environmental Impact,” illustrates the concept further. Take for example the investments made by E+Co, a nonprofit mezzanine fund focused on making debt and equity investments in businesses that develop and sell modern energy services. Because of their work, in Tanzania a student is reading at home by the light of an electric bulb powered by a solar panel her mother bought on credit from a local distributor.  Or the small business in Cambodia that is expanding with debt from a microfinance bank. The bank is originating new loans after accessing commercial capital markets through a $110 million loan fund structured in 2007 by Blue Orchard, a Swiss microfinance-focused asset management company, and Morgan Stanley. The loan fund, rated by Standard & Poor’s, was syndicated on commercial terms among institutional investors, such as pension funds, in Europe and the United Kingdom.

So how do investors implement an impact investing strategy? The Rockefeller Philanthropy Advisors in a publication titled “Solutions for Impact: From Strategy to Implementation” offers solutions. The 70-page publication serves as an excellent starting point for framing impact investing.

It details the processes to consider, broadly classified into two sections – Establishing a Strategy and Implementing and Maintaining Strategy. The processes for both involve the following stages:

• Articulating Mission and Values
• Creating Impact Themes (or focus-areas such as water, energy, climate change and so on)
• Defining Impact
• Developing an Impact Investing Policy,
• Generating a Deal Flow (to identify organizations that are best suited to meet your impact policy)
• Analyzing Deals (in short, due diligence)
• Evaluating Impact (to evaluate your projects, and guide future investment)

There are several tools/methods available to evaluate impact. Some  organizations develop their own metrics to measure impact. Recently, there has been a move towards developing a common frameworks and tools to measure impact. Some commonly used frameworks and methods are listed below:

• Impact Reporting and Investment Standards (IRIS), which is beind jointly developed by the Global Impact Investment Network. IRIS is working to develop a “common language” that will allow for comparisions and communication across a breadth of organizations using a set of indicators.
• Social Return on Investment is another commonly used method. SROI is essentially derived from a cost-benefit method of analyzing value the valued created and destroyed by an organization in the course of making a change in the world. (Source: http://www.proveandimprove.org/new/tools/sroi.php)
• Global Reporting Initiative (GRI) is a tool which consists of core and optional indicators to report on the level of compliance for six dimensions of social performance – environment, human rights, labor practice and work place, society, product responsibility, and economic impact. (Source: www.microfinanceinsights.com)

None of these tools are meant to be a comprehensive way of measuring impact. It is up to investors and enterprises to choose how best to adopt available methods to measure impact. One thing remains certain though, in the business of “doing good, and doing well,” evaluation and measuring of impact is a question of necessity.

Tell us what your experience has been with measuring impact. What tools have you found useful? What impact investing policy does your organization have in place?