Managing impact, the conundrum for impact investors (and other funders)

Lots of guidance, but not so useful

There’s no shortage of advice and guidance out there on how to ‘measure’ social impact and, increasingly, a focus on managing impact.

At least if you are an enterprise delivering products or services. However, there is very little designed specifically for investors and grant makers and the general assumption seems to be that investors, grant makers and enterprises can all use the same approach and so the same guidance.

In reality they face very different challenges and recognising these means that investors would take a very different approach to managing the impact in their portfolios.

There is increasing convergence on how enterprises should account for their impact. Social Value International’s principles, the Impact Management Projects dimensions, the Social and Natural Capital Coalitions all follow very similar approaches. These all require the involvement of those effected by an organisation in determining the material impacts, accounting for these considering depth, duration, causality and relative value, and getting assurance that the results are good enough, complete, relevant and accurate, for the intended purpose.

Social Value International’s approach argues that the intended purpose should be to maximise the positive net change in people’s lives as this would be the requirement if those effected could hold organisations to account for the social and environmental impacts, mirrored in the approaches of Keystone Accountability, Feedback Labs and others. This will be important. Enterprises pursuing this logic will be as relentless in their pursuit of social value, in comparing different options for creating value whether strategic, programmatic or operational as private sector enterprises pursue financial value and will generate data that is good enough, complete, relevant and accurate enough to inform those choices.

All good in theory. In practice, the lack of accountability means that there is very little practice that meets these standards. It is still the case the organisations do not have to account for their impact, can choose how to do it, and how often, and can choose to use or ignore the results. There are still people arguing that its too hard, that measurement leads to poor behaviours and so on. None of which would be the case if the people whose lives are affected had power. Wherever organisations are managed, owned, controlled and accountable to the people whose lives they effect the better the practise, and the fewer the excuses.

But we are where we are, and investors are having to navigate this reality.

Why bother?

Why do investors want information on their impact, or on the impact of enterprises in their portfolio?

Firstly, to help them choose investment opportunities that have the most impact, as well as achieving whatever financial requirements they have. In practise, and based on what I hear from investors, there is more money than there are available deals and so the impact becomes more of a threshold.

Secondly, to then support enterprises to increase their impact. In practise increasing impact is mainly a function of increasing scale, more money equals more impact, and the question of whether more impact could be achieved with the same resources is rarely raised, or if it is assumed that only marginal increases in effectiveness are possible.

(An aside I believe that this, unsubstantiated and often not even recognised assumption, means that the impact we are having is significantly less than it could and should have been if we want to address global inequality, SDGs etc etc.)

And finally, to be able to report on their impact, either to their own sources of finance or to a wider public.

Mission impossible

Trying to do any of these based on a measure of how much change enterprises have caused is going to be nigh on impossible given the state of practice.

In any portfolio there will be enterprises that take different approaches to:

  • what they account for ranging from only their own goals to a complete understanding of material changes they have caused
  • the extent to which those effected inform the decision of what to measure from not at all to being central
  • the approach they take to determining which of the impacts they cause matter and should be managed
  • whether they measure all or only some of depth, duration, causality and value
  • how much rigour and so what variability and risk or error they are willing to accept in measurement

And then they will come up with some reported data on their impact and send it off to the investor who must make sense of it all. All this variation means that none of the data is easily comparable and cannot be meaningfully aggregated let alone help them compare investment opportunities based on impact.

A quick fix

But the drive to report impact is still there. After all these are investors with the word impact in their description so they should be able to say something about it. And any report is going to have to summarise the impact of the portfolio. The result is reports which have information on inputs, how much as been invested, outputs, measures of people helped, or trained, and generic outcomes perhaps no of people who are healthier. Information which isn’t very useful if you want to compare opportunities based on their impact. It is even potentially dangerous as it creates a bias towards enterprises that support large numbers of people independent of depth, importance, duration or value of the outcomes. This approach is exacerbated by demands to prove impact, to have a theory of change which is supported by research, all ending up with impact reports that are nothing to do with accountability or performance. Enterprises provide information on impact to funders. Asked if its useful, it is in so far as it necessary for financing but ask if its useful in making operational decisions, in making changes to products and services.

Is there another way?

Yes. But it means standing the current approaches on its head. The people getting the impact generally cannot hold organisations to account for that impact, at least nothing like as much as investors can hold enterprises to account for the financial value. This means that approaches to impact management are not designed to help enterprises relentlessly consider alternatives ways of doing things and choosing the ones that create most value. It means that approaches and available data is very variable.

Impact investors should then be interested in the extent to which enterprises are thinking about maximising the value they create for people, what sort of systems they have in place and how these are improving over time. The critical issue is how many options the enterprise has considered based on data from users and how many have been implemented. An enterprise that isn’t changing isn’t creating as much impact as it can, given that both its users and the external environment are changing. It was Jack Welch as CEO of General Electric who said ‘if the rate of change on the outside exceeds the rate on the inside the end is near’. This is true though only true where there is accountability. But these can be measured and supported by qualitative data on the nature of those changes. SVUK is working with CAF Russia to explore this in practise. The Social Investment Business, a London based social investor, is developing its approach to impact management to consider measuring responsiveness. The increasing recognition that responsiveness and closing the feedback loop is critical, including increasing use of approaches like the net promoter score, but not yet enough measurement of the rate of response. Too much on learning organisations rather than on changing organisations.

It is also possible to assess the maturity of an organisation’s approach to managing impact and track how this changes over time. Social Value UK’s Social Value Self-Assessment Tool (, which is also linked to a certification, does just this and provides a score which can be tracked over time and aggregated over a portfolio. This is not to replace some data on impact whatever the limitations of that data for decision making and assessing performance but imagine an impact report which talked about the impact maturity performance of the portfolio, over time and against portfolio targets, which had aggregate data on responsiveness of the portfolio to users and qualitative stories of changes to bring this to life. This would start to approximate to accountability. Add in targets which are a result of debate between executive and governance, with governance acting on behalf of stakeholders and assurance of any external facing report and we would be getting somewhere. Without this we don’t know much about the impact of impact investors and we certainly don’t know if the impact is anything like as high as it could have been – with the same level of resources.

Written by Jeremy Nicholls, Social Value International member

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.