Easier Said Than Done
How do you measure your impact? Investors entering the impact investing field are grappling with this question. The problem is, there is no standardized method to measure investment impact. The potential impact varies by investment type, size, and lifetime. Because of this, investors often find themselves 'losing the forest for the trees'. Yet, there are a few common methods used by investors to measure an investment's impact.
Impact: Defined
Defining impact is the first step to measuring it. One of the best definitions of "impact" as it relates to impact investing is:
"the portion of the total outcome that happened as a result of the activity of the venture, above and beyond what would've happened anyway." (Rosenzweig, 2004)
Types of Impact
There are 2 main types of impact:
Operational Impact: a company's impact
Product Impact: the impact of a specific product of a company
(The Case Foundation, 2015)
Impact Measurement Cycle
5 steps make up the Impact Measurement Cycle:
Estimate Impact
Plan Impact
Monitor Impact
Evaluate Impact
Report Impact
(So, I. and Staskevicius, A., 2015)
These steps follow the impact of an investment from beginning to end. A deciding factor in pursuing an investment is the potential for impact. Establishing a strategy to measure, track, and report the impact is crucial to success. Managing impact through regular monitoring and evaluating can keep the impact goal on track. Throughout the investment, reports provide needed insight into the financial and social returns.
Measuring Impact
Common Methods and Frameworks
Generally, there are 3 methods to measure the impact of an investment. These are:
Process: measures specific aspects of an investment i.e. predetermined indicators.
Impact: measures the effectiveness of an impact strategy.
Monetary: measures impact by assigning a dollar value to outcomes (Purpose Capital, 2013)
Remember, there is no standard way to measure the impact of an investment. Because of this, there are frameworks designed to do this. As such, each framework falls under one of the three methods mentioned above. There is an example of a method and a framework that measures impact in the table below.
Application: Legacy
In keep consistent data across the board, all internal Legacy metrics are from IRIS. Through this, we are able to measure Legacy's impact from our investments and our programs. From this data, we learn what works, what needs adjusting, and gaps.
Conclusion
While there is a pressing need for continuing research, great strides are being made. Impact investing is a valuable tool to create lasting impact throughout the world.
Resources
Companies and organizations are publishing resources to help educate people about impact investing. Check out this list of resources!
Sources
Global Impact Investment Network. Building an impact practice: IRIS [Web Content]. https://thegiin.org/tools/Laing, K. and Todd, L. (eds) (2015). Theory-based Methodology: Using theories of change in educational development, research and evaluation (3). Research Centre for Learning and Teaching, Newcastle University. Retrieved from http://www.bredeschool.org/sites/default/files/theoryofchangeguide(2).pdfPurpose Capital. (2013, February). Existing social impact measurement tools. In Guidebook for impact investors: Impact measurement (8). Retrieved from http://www.purposecap.com/wp-content/uploads/Guidebook-for-Impact-Investors-Impact-Measurement.pdfRosenzweig, W. (2004). Introduction: Differentiating purposes. In Double bottom line project report: Assessing social impact in double bottom line ventures (8). Retrieved from https://community-wealth.org/content/double-bottom-line-project-report-assessing-social-impact-double-bottom-line-venturesSo, I. and Staskevicius, A. (2015). Executive summary: Introduction. In Measuring the "impact" in impact investing (5). Retrieved from https://www.hbs.edu/socialenterprise/Documents/MeasuringImpact.pdfThe Case Foundation. (2015, October). Why: Impact Sectors. In A short guide to impact investing (5). Retrieved from https://casefoundation.org/resource/short-guide-impact-investing/
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