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Long read: Towards a tipping point for impact investment

The impact investment market is growing at an exciting rate

Returning from three days in Chicago at the Global Steering Group for Social Impact Investment (GSG), I can’t help but take away with me some of the excitement that was palpable among the group of more than 500 participants.

If the GSG is right, we’re heading towards a tipping point in the next three years in terms of the participation of foundations, pension funds, and mainstream capital markets in impact investment.

But we see enormous barriers to success

Yet I can’t help but feel, even more tangibly than this excitement, the challenges that stand in the way—challenges that will stop a thriving impact investment market from driving real change in the world.

For me, and for NPC, the greatest challenge is ensuring that we understand, measure and manage the impact side of the equation.

There’s a danger that investment increases but we still just aren’t certain of the impact that’s being generated.

As Sasha Dichter from Acumen said, entrepreneurs today can’t say with any certainty whether they’re a high, medium or low impact organisation. Comparable data is incredibly rare. Meanwhile, most enterprises can show data that says they’re having some impact—but most of the time we don’t know nearly enough to say whether that’s a good impact.

There are a number of initiatives working to overcome these barriers

Given the size of the impact challenge for the impact investment market, it’s fantastic that a number of initiatives have been building up a head of steam to start to confront the challenge.

Convened, curated and catalysed by the team at Bridges Fund Management, The Impact Management Project (not to be confused with the Impact Management Programme, funded by the Access Foundation and Power to Change, in which NPC is also involved) is one of these. Over the past few months it has been bringing together over 700 organisations to develop a consensus on emerging norms of impact measurement and management. These organisations have agreed on five central dimensions of impact that need to be measured and managed:

  1. what the outcome is;
  2. how much change occurs;
  3. who is affected;
  4. contribution the organisation makes; and
  5. what risk there is that the expected outcomes aren’t realised.

And NPC has assisted further by putting together a set of case studies. These bring to life what good impact measurement and management looks like in a particular thematic area—youth employment—just as Acumen’s set of case studies do for the off-grid energy sector.

Alignment between investors and investees will be fundamental to success

At the heart of these case studies is a ‘golden thread’ of information. This connects:

  • what’s important and meaningful for beneficiaries and customers;
  • what enterprises need in order to manage and increase their impact; and
  • what investors need to know to be assured that they’re realising the impact they sought in their investments.

These case studies show that measuring and managing impact is possible; that there are organisations doing impact management and measurement well because they are supported by investors helping to make that happen; and that investors align the impact information they seek with what their investees need to learn, improve and succeed.

If we want to be accountable to the customers and beneficiaries, we need to understand our impact in the context of what’s important to them.

Such alignment isn’t a nice-to-have—it’s essential. If we want to be accountable to the customers and beneficiaries, we need to understand our impact in the context of what’s important to them. And if we want to manage rather than just measure impact, the data we collect has to be meaningful to the enterprises that are actually trying to deliver it.

And greater alignment is achievable if we take a thematic approach

For the field as a whole, there’s still a great deal of work to be done. While there are pockets of good practice that should be beacons to those developing the field, these are exceptions rather than the norm in practice.

NPC’s recommendation, echoed by many in the field, is that we also need to deepen our work by pressing forward into individual sectors or thematic areas.

There are real examples of this in action.

Acumen’s case studies highlight the progress that’s been made by the Global Off-Grid Lighting Association towards an agreed core of common impact metrics across the field.

The Social Performance Task Force has established a common framework for measuring and managing social performance in the field of financial inclusion.

Navigating Impact is The Global Impact Investment Network’s (GIIN) approach to identifying starting points for common measurement based on the existing evidence base in a sector.

And the World Economic Forum is helping pull these many threads together, so that it can present its stakeholders—across private and public sectors—with a coherent picture of the impact in impact investment.

So everyone in the field needs to follow suit

It’s at this level that we can agree not just on concepts, but on what data we need in practice. And we can bring together practitioners, academics, investors, foundations and policymakers in order to do so.

I believe the impact investment market has to do this. If it doesn’t, there’s a danger that investment increases but we still just aren’t certain of the impact that’s being generated. That can lead to scandals, crises, and a loss of confidence in the field as a whole. So we need more actors to take this thematic approach.

But this work won’t happen without leaders, and without investment in the work itself. The next three years will show whether there are investors and foundations with the vision required to see that this work must be resourced, and the leadership to help catalyse the progress that’s urgently needed.

I recommend that you take a look at the wealth of rich content and guidance that the Impact Management Project has produced, and see what resonates for you in the case studies Acumen and NPC have curated. There is also a highly comprehensive glossary covering impact and investment terms, curated by peers including NPC.

One Comment

  1. Very informative piece, thank you.

    Love the work that’s happening on Green finance – which is a real beacon of hope. Also with a rather different approach the disinvest movement which has captured ‘small’ investors imagination and raised awareness of the risks of climate change linked stocks.

    Impact investment as a lever for wider change incredibly exciting but lets ensure we develop the niche to influence the mainstream not just as a stand alone investment stream.

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