Impact measurement - issues and opportunities

David Stead

Based on some of my comments at a panel discussion hosted by Philanthropy Impact on 12th April 2021?

Topic:

Social impact investors, as well as charitable organisations and social enterprises, are?increasingly faced with the challenge of needing to demonstrate the outcomes of their actions. There is growing interest in applying approaches to impact measurement as part of the trend towards applying the SDGs and ESG investing.

Are good intentions enough?

No the intention to make a positive impact is important, especially if made?as a public commitment, but actions speak louder than words.

The CEO of a foundation, asset manager or company may speak out but?it's the behaviours, decisions and results that matter. Are they aligned?

Impact is becoming overused. As with ESG there is a lot of “noise” getting in the way of the substance, and a shared understanding.?

So is there a need to measure outcomes and what does impact really mean?

Yes measurement is important because impact means the change in an outcome due to an investment, grant or business activity. The change can be positive or?negative and at Maanch we are interested in the net impact (NSI - net social impact) of all those outcome changes. And we want to see “additionality”, in other words some evidence that a positive change in an outcome wouldn’t have happened anyway. For example, did that grant or the charitable programme improve education over time or did other factors have a greater influence.

Impact needs to be measured or there won’t be evidence of success - or?results to learn from. Tracking impact is key as often these are long?term issues, so we want to see the trend over time.

The impact of an asset manager could be in its direct support for an?impactful organisation in the private markets, for example an early-stage green energy company, or in the case of public?markets, the influence it brings to bear on its portfolio companies. e.g.?asking for greater boardroom diversity.

For a company it’s how its business activities create positive or negative impact on society or the environment; is it polluting or innovating ways to reduce pollution? Materiality is another key factor and this varies by industry sector. How important and relevant is the problem and the changed outcome for that sector? A law firm cutting carbon emissions from a relatively low number is less material than a transport or industrial company doing so from a big number!

For a charity or social enterprise, the impact emphasis is likely to be on how it creates improving outcomes for those in?need.

What is driving this need to measure impact?

I think different stakeholders want to see more accountability from the?recipients of funds or their business.?It’s true of all stakeholder groups whether these are investors, customers, employees or philanthropists.?Investor expectations in this area have increased but so have those of?many other stakeholders.??

They?also want greater transparency.?This could be from charities using philanthropic capital or businesses receiving?investment - I think it’s more similar than many people believe.?

Philanthropists are often passionate about making a difference in an?area they care about - they are very supportive but this doesn’t mean?that anything goes. They do want to see some “bang for their buck” partly because there’s an opportunity cost - the funds could have supported a?more impactful charity elsewhere.

With social investment like repayable finance, you would want to see?that the operation is not just paying back the loan but that it is?delivering the promised social benefits.

However, not all philanthropists & foundations want to see a lot of impact?data. Some are happy with a few basic KPIs and prefer human stories about?what the charity has done, showing how it has used the money to help?improve people’s lives; on the ground stories of impact rather than?lots of numbers.??

Is there a difference in measuring impact for the third sector and for esg/impact?investing?

Well, the key difference is that with ESG or impact investing the investor wants a financial?return. Financial return is still important but more investors are now looking at impact as well as risk and return.?

But I think most organisations still see ESG as a risk issue rather than as an opportunity to invest in?positive impact. For example, the opportunity arising from companies creating sustainably sourced products or helping under-served communities to get the basic financial, tech or health services they need.

What’s really interesting to me is how some things can start off charitable but then become more commercial. Take climate change. This is now an area of global?investment and there will be intense competition to invest in the most promising entities which deliver both financial returns?and impact. It’s moved a long way from charitable pressure groups and small start-ups. Whereas other “causal” areas still need grants and other means of charitable support. Take human rights or mental health for example; critical and complex areas for society but very hard?to measure impact or expect commercial returns.

How do the SDGs fit in??

At Maanch our starting point is often the SDGs for all types of?organisations. But the openly available data is hard to use. You need to get underneath the headline data and manipulate it towards useful outcome measures. Also to see the links between?the goals. So, with some work and knowledge, the SDGs can provide great impact data.

Through an SDG lens, charities can show how they are addressing the goals which funders?are interested in and companies can show to investors their SDG?impact.

Do you think technology has a role to play in impact management?

Well I work for an early-stage tech B-Corp in the impact space so it’s a yes from me!

Processes tend to be very inefficient. Especially ones in emerging areas like impact and ESG. Tech can save a huge amount of time. For example, in matching the demand?and supply of philanthropic capital around shared causes or SDGs.?

It can help bring people together in a systematic way so they can collaborate and scale their?impact. And?it can help people to make better, evidence-based decisions by structuring the reams of fragmented data out there and tracking it so it can be more useful.

One of the big issues to crack is effective stakeholder communication when there’s?so much noise and impact washing in the markets.??Tech can automate reporting with real time data and?bring it to life visually through digital dashboards.?

What role do or should philanthropist and impact investors play related to impact?measurement?

For a start they could try to be very clear about what they want to measure and why. And be realistic about this. For example, small charities, social enterprises or?businesses don’t have the resources to spend lots of time collecting?and reporting data.

What’s really needed to identify the most important change in outcomes I mentioned earlier?

Also, if they believe impact measurement is very important, donors could finance?the resources needed and help the organisation to develop its?capacity to manage impact well. It may attract more funding through that so it's a good investment. I have seen that work well and with a range of charities/SEs.

What is the current state of impact measurement in charities??

I think it has improved but varies enormously. Some foundations and?NGOs are extremely sophisticated, investing in deep evaluation and?learning. They work closely with others on difficult and systemic issues which require multi-stakeholder action. This includes working with?their beneficiaries or communities and using feedback loops (leaders like Impetus PEF and Laudes Foundation come to mind).?

For others impact measurement may not be a priority or they may not have the resources to do it. It also varies a lot by sector or causal area. As we know, trying to pull?hard reliable data out of very sensitive or complex human situations is very?difficult.

How do they incorporate this in screening and selection processes??

Impact questions can be included in funding applications - what's the?history of delivering impact or how is impact captured??After a period, impact reports can be requested looking back at how the?funds were used versus targets or KPIs.

I like the regular but simple approach. This means spending time upfront identifying the 3 key questions which tell you how well the organisation is really doing in achieving its objectives; these questions could be asked on a regular basis, even monthly, and the results tracked. Doing this, issues will be seen early on, allowing time for corrective action or learning. Most importantly it's not too arduous or time consuming for the recipient.??

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