Impact Investing 101: Impact Measurement

By Jane Ren, Lisa Ruskin, and Brenna McCallick, Pacific Community Ventures

Impact investing practitioners and advocates constantly strive to find the most effective ways of deploying capital for good. The struggles inherent to this process are many: finding attractive investible opportunities, structuring investments appropriately for their recipients (while not compromising returns), using the existing policy environment advantageously―the list goes on. But in the often hurried frenzy to find the best ways of deploying capital, many in the impact investing community have struggled to track, evaluate and report on the actual social and/or environmental impacts of their investments.

For this 101 post, I asked two of my colleagues at Pacific Community Ventures (PCV) to share their thoughts on this important issue of impact measurement. Jane Ren and Lisa Ruskin are analysts on the PCV InSight team, providing impact analysis, reporting services, and impact strategy consulting to impact investors across asset classes.

In addition to providing a list of resources below on impact measurement, Jane and Lisa offered their take on two key questions: why measure impact at all, and what are the challenges impeding investors from adopting effective measurement practices?

The Most Important Reasons We Measure Impact

Impact measurement provides transparency and accountability. This is fairly straightforward. For impact investors, it’s critical to be able to demonstrate to funders, beneficiaries, the public, and others that their capital is having its intended effect―both from a financial and impact perspective. Capital providers are usually far removed from the end beneficiary of an impact investment, with layers of administrators and/or financial intermediaries in between. Impact measurement helps bridge that gap, making it clear who is benefiting from the investment and how.[pullquote cite=”” type=”right“]”Impact investors are like any other investors — they have a finite pool of capital with which to reach their goals. Through quantifying, analyzing, and reporting the impact of various projects, evaluators can help investors better allocate their capital to the most impactful projects.”[/pullquote]

Impact measurement aids decision-making. Capital providers and others involved in any given impact investment might have a particular theory of change associated with their investment strategy. Impact data can help shed light on the efficacy of a strategy and highlight unexpected results, often leading to dialogue ―and potentially, to changes to the strategy. At a higher level, impact investors are like any other investors — they have a finite pool of capital with which to reach their goals. Through quantifying, analyzing, and reporting the impact of various projects, evaluators can help investors better allocate their capital to the most impactful projects, as well as find ways to increase the impact of their existing projects.

Impact measurement builds the impact investing field. The more proof we can provide of significant impact on the ground as a result of impact investments, the more credibility the field gains with the wider investing community, policymakers, the media, and others. 

Why Isn’t Impact Measurement More Prevalent?

For one, it’s much easier in theory than in practice. While impact investors want to capture and understand their impact, several challenges complicate the process, such as:        

Determining what to measure and how. The first issue is determining how to distill an investee’s work―say, constructing affordable homes or providing healthy school lunches for kids―into a set of discrete metrics that fully demonstrate the impact of their activities. What data points can an investor point to that fully and accurately demonstrate the impact of their investments on an individual, on a community, on the environment?

Using standard vs. custom metrics. Deciding on a system of measurement can be particularly daunting given the lack of established, standard metrics in the field. Several initiatives have worked to create uniform metrics to guide impact measurement efforts, but it would be impossible for these or any initiatives to generate an exhaustive set of metrics relevant to all investors. This tension between standardization and customization poses a challenge as impact investors and others in the field try to speak the same impact “language”― i.e., track the same metrics and compare results―while still capturing the impacts of certain investments at a more detailed level.

Collecting data. Even after identifying metrics that speak to an investee’s impact, there’s still the challenge of accessing the data behind those metrics. Human and financial resource constraints often prevent some investees from designing and implementing a system for data collection and storage. An organization may, for example, lack in-house expertise on how to measure social outcomes effectively and not have sufficient financial resources to hire additional staff or consultants. Beyond capacity, investment type is another factor. Equity investors may be better positioned to collect data after an investment is made than investors who offer debt, due to their more involved role with investees.

Relatedly, an investee’s ability to access end beneficiaries―perhaps employees of a financed business or residents of an affordable housing development―will affect the quality and detail of data they can collect on these populations. For example, an investor may want to collect data on how many minority employees its portfolio companies support. If financed businesses are not already tracking the race and ethnicity of their employees, it may be difficult for investors to collect and track that information, or for the investee to report on behalf of the employees.

PCV InSight works with investors to overcome such barriers and find solutions that allow them to understand their impact and improve their strategy. Ultimately, overcoming challenges to effective impact measurement on a wide scale will require ongoing dialogue among the broader impact investing community. For our part, we’re glad to see this topic increasingly becoming a staple of conversations about advancing the field.

More Information and Resources On Impact Measurement

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• Making the Case for Social Metrics and Impact Investing (Margot Brandenburg, Rockefeller Foundation, 2010) In this article, Brandenburg argues that impact measurement should not remain the purview of measurement experts alone, but should be understood by all in the impact investing space. To illustrate the importance of understanding measurement, she lays out a few “doomsday scenarios” should standard, easy-to-use impact metrics not take root as the field grows.

• Why Measure Social and Environmental Impact? (Impact Investor UK, 2014) This report from Impact Investor provides a great overview of impact measurement in plain, straightforward language.  It lays out the elements of an effective measurement system, describes the reasons tracking impact is imperative to the growth of the field, and explores key challenges evaluators face.

• Measuring Impact: Subject paper of the Impact Measurement Working Group (Social Impact Investment Taskforce, 2014) This report presents the summary findings from the Impact Measurement Working Group, part of the Social Impact Investment Taskforce convened under the UK presidency of the G8. It offers a look at the state of measurement across the field, and makes recommendations for strengthening the practice going forward.

• Social Impact Investing: Building the Evidence Base (OECD, 2015) From the Organisation for Economic Co-operation and Development, this report takes a forward-looking approach to measurement, making the case for standardizing social and environmental impact metrics.  Be sure to check out the report webinar co-hosted by GIIN and the Global Learning Exchange.

• Social Impact Measurement (MaRS Centre for Impact Investing, 2015) MaRS has put together a clear, easy-to-use guide covering the methodologies, applications, and lexicon of impact measurement. It offers information to help you contextualize and understand the ways investors track and evaluate impact.

• Impact Measurement: Exploring its Role in Impact Investing (Bessi Graham and Elliot Anderson, 2015) In this report commissioned by the National Australian Bank, the Difference Incubator, and Benefit Capital, the authors describe the impact measurement process from the perspective of an investor and an investee, and evaluate the efficacy of nine different approaches to impact measurement.

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• B Analytics (B Lab) A helpful way to think of B Analytics is as “the Salesforce for impact data”―a dashboard of sorts for viewing aspects of a company or a fund’s impact performance.  Investors use the platform to evaluate the impact performance of companies in their portfolios, learn about ongoing trends and compare data against benchmarks.

• GIIRS Ratings (B Lab) A measurement system and reporting tool, GIIRS utilizes standardized metrics to rate the impact performance of companies and funds, allowing investors to compare.  GIIRS ratings are used in B Analytics services.

• Impact Genome Project (Mission Measurement) The Impact Genome Project is creating “synthetic” or algorithm-based data on impact that allows users to predict the likelihood of future outcomes for various interventions. The creators hope to gather enough information on past and ongoing social and environmental programs to build out an increasingly comprehensive dataset against which stakeholders can compare and faithfully predict the impact of future projects. (It’s an ambitious initiative―and not without its critics.)

• IRIS Metrics (GIIN) Described as a “catalog of generally-accepted performance metrics that leading impact investors use,” IRIS metrics are largely regarded as the standard for measurement in the field.

• IRIS Partner Metric Sets (GIIN) GIIN offers a list of specialized, alternative measurement systems designed for evaluating impact in areas like land conservation, health, microfinance, sustainable agriculture, and others.

• PRISM (Intellecap, IFC) Designed in India by Intellecap and the International Finance Corporation (IFC), PRISM assigns impact scores to funds based on a combination of the financial and impact performance at fund and individual portfolio company levels, examining an investment’s impact on end beneficiaries, suppliers, employees, governance practices, and the environment.

• SROI (Social Value UK) Social return on investment (SROI) is a framework developed to capture social and environmental value in financial terms.  Individuals can use the system to determine an investment’s impact in terms of financial costs and benefits either retrospectively (at the end of an investment), or predictively (before an investment has been made).

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• Managing vs. Measuring Impact (Morgan Simon, SSIR, 2015) To understand the nuance, challenges and critical importance of determining an investment’s outcomes rather than mere outputs, check out this thought-provoking post from Morgan Simon of Pi Investments.  Simon describes the process of partnering with Huntington Capital to invest for and measure the creation of quality jobs (i.e., jobs offering living wages and benefits) in low income areas. In the process, she makes the case for utilizing metrics to capture actual value creation, as opposed to simply quantifiable outputs.

• Invest Northwest: Impact Measurement in Practice (InSight at Pacific Community Ventures, 2015) This report showcases eight years’ worth of data and findings from PCV InSight’s work evaluating the Northwest Area Foundation’s private equity fund, Invest Northwest.  See how the team tracked the impact of the fund overtime―and the lessons the evaluation provided for the foundation, as well as the broader impact investing community.

• Measuring CommCap’s Social Impact (Daniel Brett, Pacific Community Ventures, 2015) In this blog post, PCV InSight’s Daniel Brett gives readers a glimpse into the challenges facing impact investors as they think through the best ways to capture their impact. He tells the story of working with Community Capital Fund (CommCap) to identify a set of practicable recommendations to inform not only impact measurement, but the very design of an investment strategy for high, targeted impact.

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 Still have questions? Stay tuned.

In future “101” posts, we will point you toward more prime information about impact investing.  We look forward to sharing the best resources available on different topics in the field, reflecting a variety of perspectives.

Let’s collaborate.

If there’s a topic you’d like to learn more about, or a report, article, blog post, video, infographic or other informational resource you think belongs on one of our lists, let us know: info@iipcollaborative.org.

Photo by Freddy Fam: Measurement

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As a member of the Insight team, Jane Ren works to develop and report on non-financial performance metrics that help PCV and other clients to measure the social impact of their investments. Previously Jane worked as a credit risk analyst at J.P. Morgan Chase & Co., specializing in financial institutions. Her responsibilities included developing risk ratings for a portfolio of counterparties of varying sizes and business models, completing financial analysis and due diligence for lending transactions, and producing quarterly reports on portfolio risk, performance, and trends. Jane holds a B.S. in Finance from New York University’s Stern School of Business. She can be reached at jren@pcvmail.org. 

Lisa Ruskin is an Analyst for InSight, supporting PCV’s impact advisory and consulting services. In this role, she develops and reports on non-financial performance metrics that help PCV and other clients measure the social impact of their investments. Prior to joining PCV, Lisa worked at EARN, a financial services nonprofit, where she designed, implemented, and evaluated microsavings accounts intended to promote financial prosperity for low-wage workers. Lisa’s previous experience in the public sector also includes conducting research for the San Francisco Mayor’s Office of Housing and leading community outreach initiatives for GreatNonprofits, an online review site for nonprofits. Lisa holds a BA in Urban Studies from Stanford University. She can be reached at lruskin@pcvmail.org. 

Brenna McCallick serves as Research Associate for InSight, supporting PCV’s domestic and international impact investing policy initiatives. She conducts research on public policy as it relates to impact investing, produces content for InSight publications and monitors global trends in the field. Prior to joining PCV, Brenna worked as a Development Assistant at Room to Read, an international nonprofit that promotes literacy and gender equality throughout impoverished regions of Asia and Africa.  She holds a BA in History from the University of San Francisco. She can be reached at bmccallick@pcvmail.org.