Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
explores how social impact is currently measured and what initiatives are in place to
standardize this measurement across sectors and investors.
Throughout, we use the term
“social” to include social and
environmental.
Social impact risk: Metrics, standards and ratings
We have defined impact investments as investments intended to create positive
impact beyond financial return, which allows us to identify impact investments at the
time of investment. But we cannot assess whether one of these investments has been
successful without measuring the financial returns and the social impact. The
financial performance measurement is arguably simpler (we’ve done this in Section
3. Financial return expectations), as metrics are more readily transferred from the
traditional investment world to impact investments 106 . Measuring social impact,
however, remains a work-in-progress for many market participants, and in this
section we explore the tools that are currently under development.
Defining our terminology: Outcomes vs. output
Before we can speak of impact measurement, we should define just what we are looking to measure. This section discusses the
measurement of ‘impact’ because that is the term used by most market participants. However, in social science, ‘impact’ has a specific
definition: it describes outcome(s) that can be attributed to a particular intervention, as depicted in Figure 26. An academic impact
evaluation of a bednet manufacturer, for example, might entail a multi-year study on the incidence of malaria among target customers,
with a control group to understand what would have happened to those customers if the company had not sold them bednets. This type
of evaluation would provide the greatest possible certainty that the bednet company had delivered the social impact intended by its
management.
Figure 26: Impact Value Chain
INPUTS ACTIVITIES OUTPUTS OUTCOMES
GOAL
ALIGNMENT
What is put into
the venture
Venture’s
primary
actions
Results that can
be measured
Changes to social
systems
Activity and goal
adjustment
WHAT WOULD
HAVE HAPPENED
ANYWAY
LEADING INDICATORS
= IMPACT
Source: The Rockefeller Foundation, J.P. Morgan.
Rigorous impact evaluation, including Randomized Control Trial (“RCT”), is powerful, but onerous and expensive in practice.
Many impact investors therefore settle for measuring ‘activities’ or ‘outputs’ (such as number of bednets sold) rather than running
control groups to measure the ‘impact’ 107 . Investors balance the need for rigorous impact evaluation against the need for simple,
cost effective ways of measuring this impact. We believe the tools being developed to balance these needs should build on
knowledge generated by the existing body of academic literature, while acknowledging the need for systems that add value and are
pragmatic for investment activity.
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106 While there is room for debate around the financial metrics of impact investments (such as
‘risk-adjusted’ return), we leave the more detailed exploration of that topic for future research.
107 There could also be ethical questions about running control groups if it meant denying the
product or service to a part of the population that should have equal access.