3. My impact measures to the moon and back. The self-identified members of the impact investing community – including the authors of this article – are passionate about the impact goals we would like to achieve. Sometimes so much so that we end up defining our impact with words such as “immense” or “ground-breaking,” only because we cannot find a meaningful way to measure it. Sometimes this belief in the immensity of our impact can lead to investors and entrepreneurs getting carried away with indirect and incidental effects over which they have little control. Like my maths teacher used to say – and the US Navy before him — “Keep it simple, stupid.” When done appropriately, the discipline of measuring impacts requires investors and entrepreneurs alike to strike a balance between rigor and feasibility. Focus on what your investment/business can actually change. This will help you define a small set of metrics that you will be able to collect and report on across time. In turn, that will help you connect the dots with your inspirational goals.
4. Strengthen your “Impact roadshow.” The core thesis of impact investing is that financial returns can go alongside social and environmental benefits. However, being an impact investor often involves taking on a higher level of risk, or accepting a lower level of risk-adjusted returns.
Impact investors undergo beauty contests and road shows to raise funds, just as they would for initial public offerings. Here, potential stakeholders are always eager to know what they are achieving “in exchange” for this enhanced level of risk.
Having a clear results framework that backs your impact thesis might prove to be the best tool to show your accountability and transparency towards them, while also stopping you from committing to results you cannot deliver. The further you can delve into those impacts, with surveys and rigorous methodologies, the more credible and transparent you are going to look.
And now, a bad reason to measure impact
‘Mirror, mirror, on the wall, who's the fairest of them all?’
As results measurement specialists, we often hear questions such as, “How do you prioritize impact projects?” or “Can your results framework tell us whether a certain investment is more or less impactful than another?” This is a misguided quest. Even the best impact measurement will only give you limited insight on how to prioritize among investment opportunities in different sectors, which contribute to very different types of impacts, or on how to trade off between depth and scale of impacts.
Someone trying to decide whether a healthcare improvement that will see 100 people treated has more impact than providing 100 households with better access to information faces the classic problem of comparing apples with oranges.
As another example, would you rather support a health clinic providing affordable services to 1000 patients a month or a social enterprise that will provide 100 individuals with a completely transformational livelihood opportunity?
This is why measuring impact should contribute towards the overall assessment of a business opportunity, in combination with techniques such as a cost-benefit analysis where relevant.
Impact measurement should be an opportunity to take stock of investments in relation to your own impact goals, and to maximize the impact of each individual project along the way, including controlling for potential unintended negative impacts you might have overlooked