‘Here’s how this often unfolds: seeking comparable, aggregate measures of impact, investors identify “what” measures they need and ask their investees to provide them. Investees typically don’t have access to these data, so they instead share sales or employment figures. The impact investor then converts these into “lives impacted” numbers and makes approximations of impact—such as increases in income or CO2 averted—based on desk research.’
For many years, In the world of charity, it’s been easy to do ‘good’. Without investor scrutiny, the industry, together with national and multilateral approaches to aid, has evaded effective measurement – resulting in trillions being spent with remarkably little commensurate long-term improvement.
The answer, for many, is impact investing – applying investor acumen to the great challenges of our time to deliver social as well as financial returns. Shifting values have thrown weight behind this once-fringe industry, which now comprises around $500 billion managed by a multitude of emerging organisations worldwide – yet still only a fraction of the $5-7 trillion of such funds needed to achieve the SDGs. When it comes to measurement, impact investing should be the site of our most important innovation. To create social returns, investment must be effectively targeted at social issues, and rewards based on outcomes. And yet it remains a world of confusion – with more than 150 different systems of measurement, all of which measure differently, preventing transparent, comparable outcomes being established. As nearly all systems focus on limiting damage rather than amplifying good, it also remains an area of huge lost opportunity.
To address this need, I’ve been working for several years on the External Rate of Return: the most holistic measurement of impact to date, which offers a way to positively maximise, and not just manage, the ripples every organisation leaves in its wake. To have effective measurement, we also need the right data – and it’s this, above all else, which so often remains elusive.
A quick glance at this rapid growth industry – embraced by genuine moral leaders and dubious virtue signallers alike – shows a worrying replication to the charity sector’s slapdash approach. According the Global Impact Investing Network (GIIN) 2019 Impact Survey, a stunning 98% of impact investors are meeting or exceeding impact expectations. As impact innovator Sacha Dichter drily notes, ‘Put another way, just 5 of the 266 impact investors surveyed were brave enough to say that they were under-performing on impact (or, maybe only five have clear enough impact goals and data to make it possible to under-perform).’ Dichter reinforces the key issue: the wrong data, in an industry that’s highly context specific. The experiences of a solar panel owner in Tanzania, for example, will be very different to an owner in India. So impact is extrapolated, not lived; and the people who could shed light remain unheard.
To fix this issue, Dichter created 60 Decibels. 60 Decibels is the volume of human conversation, and this is exactly what this organisation harnesses to deliver meaningful, cost-efficient, dynamic data that illuminates the real difference a product or service makes to people’s lives. Its Lean Data model uses the ubiquity of mobile (now 5 billion-strong) to converse directly with people in developing economies, using a set of simple measures and questions that focus on NPS score, impact on quality of life, access to good alternatives, and challenges experienced. The results are qualitative differences rarely considered, like the impact of financial stability, not just gains, and the cumulative benefits of mental wellbeing. It also reveals that energy interventions have by far the most positive impact for consumers’ quality of life, above agriculture and education. Its brief whitepaper makes for fascinating reading and offers inspiring for change makers everywhere.
I welcome this development, which sits firmly within the scope of my own External Returns guidelines that I published with Dr Robyn Klingler-Vidra and Mr Martim Jacinto Facada in 2016. It is currently being developed with King’s College London into a fully functioning platform (summary here).
