Smart money: Understanding the impact of social investment

Smart social investment can bring money to address some of our most enduring social problems. But the pressure is on to prove that these results are achieved. This paper shares our lessons learnt so far and builds on our experience in the social sector to suggest how we might achieve better impact measurement for social investment in the future.

What NPC has learned so far

Social investment or impact investing is designed to achieve social impact through financial investment. We want to capture capital so that efforts to help young people get jobs, enable the vulnerable to live in good quality housing, or rehabilitate offenders, can be developed and expanded.

But the pressure is on to prove that these results are achieved. Large-scale investors will increasingly seek clarity on impact, preferably in simple, accessible formats that make decision-making easy. The Social Impact Investment Taskforce established by the G8 has now issued its report stressing the need for impact to be articulated clearly.

But the reality of social investment is complex. The market is wide-ranging and varied, involving a mixed economy of intention, depth of impact, product and sectors.

The way social investment achieves impact is not direct—with each step in the chain between investor and final beneficiary there is a reduction of control and attribution. In the middle of the chain we have investee organisations that will want to collect data that is useful to their work, while also needing to satisfy investors.

The greater the alignment between investor and investee, the better—having irrelevant measures forced upon investees will not help to increase impact.

Somehow we have to make sense of the complexity and tensions inherent in measuring impact in a way that is authentic, and will also support the market to grow.

The good news is that expertise in the social sector and social investment market is abundant and growing. However not all impact measurement initiatives are consistent, and not every social investment finance intermediary (SIFI) reports impact transparently and comprehensively. We think SIFIs that report impact only selectively should emulate others that are convincingly comprehensive. We have valuable methodologies and tools to build on.

This brief paper attempts to bring out NPC’s lessons learnt from our work thus far. It is not a comprehensive mapping of all measurement taking place—although we think this would be a very useful exercise—but instead offers pointers for how we might achieve better impact measurement in the future, and how impact can be best articulated now.

Unlocking so much capital would solve many of today’s problems. The prize is a big one, but will only be effective if everyone working in this area helps develop the credibility of impact investment.

Iona Joy, report author