The workshop, which will take place on 15.11.2021 in Brussels with the hosts Creative District, a partner organisation for the i2 SustainIT project, is approaching.
This short article is dedicated to the topic that will be discussed by over 30 participants in this workshop (social entrepreneurs, mentors and investors), namely what is good for investors to know when investing in social enterprises. In general, and easily, the answer to this question sounds like this - to achieve positive impact on society and at the same time to make a profit from the money invested. But is profit only measured in money?
How and why measuring the results of an investment is so important.
Whether it is true for investors, that represents the motto of the social entrepreneurs themselves "Do business for good" or maybe “Invest for impact”? Answers to these questions one can find in the outputs of the project i2 SustainIT.
All of us know that data has become an integral component of every kind of investment decisions, and impact investing is no exception. It’s impossible to know whether an investment is effectively delivering impact without measuring and recording its progress. The investors need reliable, standardized data. They use this information to make decisions about specific investments as well as to inform their overall strategy, with the goal of feeling confident that they’re realizing the greatest possible impact with their capital. From a bigger-picture perspective, impact measurement paired with thoughtful reporting builds industry knowledge of what works and what doesn’t. In turn, well-designed reporting illustrates the progress made toward tangible outcomes and helps raise the industry’s profile.
The Global Impact Investing Network (GIIN) defines impact investments as investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns, depending on investors' strategic goals.
Measurement of impact is central to impact investment. As the G8’s Social Impact Investment Taskforce put it: “The better we get at measuring impact, the more money will flow into impact investment” (2014).
What is Impact Measurement?
This term includes these activities that investors undertake in order to evaluate and report on the financial and social change generated by an investment. Impact measurement is one of the defining characteristics of impact investing, as it demonstrates the commitment of investors to the social and environmental progress of their investments. It also allows them to feed the knowledge gained back into the business to fuel data-driven decision-making.
Success as defined in a traditional business can be easily gauged using established and readily understood financial measures. In comparison, the impact performance is more difficult to identify, quantify and measure.
A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field. The Investors’ approaches to impact measurement will vary based on their objectives and capacities, and the choice of what to measure usually reflects investor goals and, consequently, investor intention.
In general, the components of impact measurement best practices for impact investing include the following:
Why Measure Impact?
Perhaps the most obvious reason for measuring impact is to understand the social or environmental outcomes of an investment after it has been made. However, analysts have highlighted a range of reasons for measurement, and this measurement helps guide the decision-making process at various stages of the investment.
For instance, So & Staskevicius (2015) highlight four key objectives of measurement in their analysis of 20 impact investors’ practices:
Thus, as well as providing accountability to investors and increasing investor confidence in an investment, effective measurement helps investors choose investments (by picking firms with the best environmental track record, for example) and helps explain reasons behind an investment’s success, or flop, in creating impact.
Partners @i2 SustainIT
Even as impact investing has expanded from a niche strategy into a $500 billion global industry in recent years, it is still relatively young. The industry’s continued growth will rely in part on ensuring a consistent and effective method of impact measurement, especially as investors start demanding information about exactly how their dollars are moving the needle on the issues they target.
But standardizing this piece of the impact investing process is far from simple. From the unique complexity of each initiative to the variety of players proposing solutions, industry alignment has been difficult to achieve—and the high stakes mean development cannot be rushed.
Data has become an integral component of investment decisions, and impact investing is no exception. It’s impossible to know whether an investment is effectively delivering impact without measuring and recording its progress.
This is why investors need reliable, standardized data.
Sophisticated investors use this information to make decisions about specific investments as well as to inform their overall strategy, with the goal of feeling confident that they’re realizing the greatest possible impact with their capital. From a bigger-picture perspective, impact measurement paired with thoughtful reporting builds industry knowledge of what works and what doesn’t. In turn, well-designed reporting illustrates the progress made toward tangible outcomes and helps raise the industry’s profile.
Despite the growing consensus around the need for uniform data, efforts to standardize remain fragmented.
With the Project Output - Impact Measurement Guidelines - our aim is to provide a concise and comprehensive guide for investors and mentors on the various alternatives and frameworks for measuring the impact of their investment and activities.
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Partners @i2 SustainIT
There are a wide range of measurement tools and approaches used within impact investment, and these are used by both investees and investors, as well as third party certifiers (e.g. for ecolabel certification). Research has found that investors tend to use a number of techniques that are suited to their specific needs.
Making real social progress means using the right data—and lots of it—to evaluate outcomes, but caveats and misunderstandings abound, even among professionals in the impact measurement arena. Many organizations simply don’t have a clear, evidence-based idea of how or why their programs work, and different organizations have different ideas of what impact measurement entails. Before making important decisions about allocating resources, organizations need to first identify their impact program, where they want it to be, and how to get it there.
To aid the process we would like to present some of the most recognized and widely used impact measurement frameworks.
Global Impact Investing Network
The Global Impact Investing Network (GIIN) is a not-for-profit organization dedicated to increasing the scale and effectiveness of impact investing. The GIIN builds critical infrastructure and supports activities, education, and research that help accelerate the development of a coherent impact investing industry. For more information, visit their website
GIIN introduces the concept of Impact Measurement and Management - includes identifying and considering the positive and negative effects one’s business actions have on people and the planet, and then figuring out ways to mitigate the negative and maximize the positive in alignment with one’s goals. Impact measurement & management is iterative by nature.
To access practical how-to guidance to help advance your IMM practice, refer to IRIS+ guidance.
Impact Management Project
The Impact Management Project (IMP) provides a forum for organisations to build consensus on how to measure, assess and report impacts on environmental and social issues. IMP convenes a Practitioner Community of over 2,000 organisations to debate and find consensus (norms) on impact management techniques. It also facilitates the IMP Structured Network – an unprecedented collaboration of organisations that, through their specific and complementary expertise, are coordinating efforts to provide complete standards for impact measurement, assessment, and reporting.
IMP defines impact as a change in an outcome caused by an organisation. An impact can be positive or negative, intended or unintended. To understand and measure any impact, the Project introduces the five dimensions of performance.
On the IMP page you can find them! Visit their website
Study of Harvard Business School
The aim of this study was to deepen the understanding of the specific practices and methodologies that established impact investors use to measure the social impact generated by their investments, and to analyse the conditions under which each measurement method is most relevant. The intended audience for this analysis are the impact investors themselves, as well as social sector organizations, traditional funders, and evaluators.
Impact investors employ a number of methods to pursue their objectives. Recognizing that investors vary in their level of maturity and resources – and that their investees may also vary in level of impact measurement sophistication – is important. The Study proposes a framework that caters different integrated measurement models to each stage of investor and investee. Visit their website
Social Impact Investment Taskforce
The Group of Eight (G8) refers to the group of eight highly industrialized nations—France, Germany, Italy, the United Kingdom, Japan, the United States, Canada, and Russia—that hold an annual meeting to foster consensus on global issues like economic growth and crisis management, global security, energy, and terrorism. The Working Group Under the direction of the Social Impact Investment Taskforce, the Impact Measurement Working Group was established, consisting of 24 impact investing and measurement practitioners.
The Working Group has identified four broad phases of impact measurement: Plan, Do, Assess and Review. Along with insight into the impact that an activity is generating, this process generates intelligence that can further enhance the measurement and investment processes. Visit their website
World Business Council for Sustainable Development / International Finance Cooperation
In 2006 WBCSD and IFC have joint forces to create a clear and practical measurement methodology that could be adapted to different business sectors, be used by operations anywhere in the world and be tracked over time. Unlike environmental impact assessments (EIAs) or environmental, social and health impact assessments (ESHIAs) that are normally carried out as part of due diligence to determine future potential impacts arising from a greenfield or brownfield business investment, they wanted to be able to measure actual impacts at any stage in the life cycle of an operation.
The resulting Measuring Impact Framework is designed to help companies understand their contribution to development and use this understanding to inform their operational and long-term investment decisions and have more informed conversations with stakeholders.
Visit their website
The Investment Integration Project
TIIP’s mission is to help institutional investors understand the feedback loops between their investments and the planet’s overarching systems – be they environmental, societal or financial – that make profitable investment opportunities possible. TIIP also provides these investors with the tools to manage the impacts of their investment policies and practices on these systems.
TIIP offers investors a framework for where to focus and how to build an effective approach. Going beyond traditional returns metrics, the framework analyses how to consider and target appropriate goals. The TIIP proposal focuses on “system-level” investments, or big-picture issues like the United Nations’ Sustainable Development Goals. Visit their website
Principles for Responsible Investment
The PRI is the world’s leading proponent of responsible investment. It works: to understand the investment implications of environmental, social and governance (ESG) factors; to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
The PRI acts in the long-term interests: of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. The PRI is truly independent. It encourages investors to use responsible investment to enhance returns and better manage risks, but does not operate for its own profit; it engages with global policymakers but is not associated with any government; it is supported by, but not part of, the United Nations.
Responsible investment is an investment strategy which integrates environmental, social, and governance (ESG) factors into investment analysis and decisions. It recognises that ESG factors can have an impact on the financial value of an investment and also that investments have an impact on the world around us. Visit their website
Partners @i2 SustainIT
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