Impact Management
Impact management is a rapidly growing field that seeks to measure, manage, and report on investments and businesses' social and environmental impact. With increasing interest in sustainable investing and corporate social responsibility, investors and enterprises recognize the importance of understanding and managing their impact. This article provides an overview of the key concepts, tools, and organizations involved in impact management, as well as a discussion of the perspectives of investors and enterprises.
Definition of Impact Management:
Impact management identifies, assesses, manages, and reports on the social and environmental impact of investments, business operations, and products. It helps investors and enterprises understand the impact of their actions, set goals for positive impact, and take steps to achieve those goals. As a result, impact management can help organizations create shared value for society and improve the sustainability of their operations.
Importance of Impact Management:
Impact management is essential for several reasons. For investors, impact management helps them understand their investments' social and environmental impact and align them with their impact goals. For enterprises, impact management helps them understand the impact of their operations and products and take steps to minimize negative impact and maximize positive impact. By considering their impact on business decisions, companies can contribute to sustainable development and mitigate risks and opportunities. Additionally, as society and investors become more conscious of the impact of the companies, impact management is becoming an essential aspect for companies to showcase their commitment and progress toward sustainability. This can attract new customers and investors and increase the trust of the existing ones.
What is Impact Measurement and Management?
- From counting "what" happens to understand "why" things happen
- Understanding how the "why" informs "what "is essential to measure
- Collaboration amongst stakeholders to select indicators appropriate to inform your decision making
Social impact management involves proactively managing and maximizing the positive social and environmental impact of a business, nonprofit, or organization. It involves setting goals and targets for impact, implementing strategies to achieve those goals, and regularly measuring and reporting progress. Impact measurement consists in quantifying and evaluating the impact of a particular program or intervention. Program reporting is the process of communicating the results and impact of a program to stakeholders. Finally, storytelling is a way of expressing the impact of an organization through a compelling narrative. Understanding these four concepts' differences is crucial for effectively managing and communicating your organization's social impact.
As interest in impact measurement and management (IMM) is growing, we are increasingly worried about how asset managers view IMM's role in their internal strategy. Researchers and impact practitioners familiar with impact management projects (IMPs) believe that fund managers need to address the true purpose of IMPs.
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Impact measurement and management are valuable tools to achieve faster growth and success. KEY TAKEAWAYS
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In a recent podcast from Wharton, Katherine Klein interviews Maoz (Michael) Brown, head of research for the Wharton Social Impact Initiative; Michael exposes common misconceptions about impact management and reporting from impact investors. Listening to this podcast, Ana Pimenta, Impact Manager Social Capital Foundation, recently commented that it is worth understanding.
I have been asking for a long time: Where are investors/fund managers measuring outcomes and setting impact targets/goals?
"According to The State of Impact Measurement and Management Practices (GIIN, 2020), 78% of respondents seek to understand outcomes, and about 80% set impact targets. My experience in the field and as a researcher tells me a different story. In my opinion, this is due to a lack of impact knowledge (understanding well what impact means, the difference between an output and an outcome, assuming some sectors will be (of course!) impactful, an intentionality that is not adequately considered, etc.) and the lower priority given to impact results (when compared with financial results)."
If we are serious about impact management, we must clarify the tools' different approaches. So, let's start with four common objectives and create a proper understanding of the impact management landscape. The purpose of this article is to get these terms straight.
- Impact Rating
- Program Reporting, Storytelling, and Visualization
- Impact Measurement
- Impact Measurement and Management
Social Impact Management
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End-to-End Social Impact Management :
Discover how entrepreneurs can get ready for outcome-based funding in a short time. Learn from enterprises that communicate their impact through an outcome-based dashboard rather than using traditional metrics required by the funder. Social impact management assists enterprises with continuous learning and improvement. It is no longer a once-a-year exercise performed by socially driven organizations. Instead, effective social impact management requires organizations to be digitally savvy and data-driven for scaling and maximizing the impact of their products and services.
Impact Rating
The enterprise's impact rating measures its ability to achieve its goals. Companies are evaluated based on pre-set questions aligned with SDGs, ESG, and individual metrics. While impact rating and impact are two different things, GIIRS found that comparing results were unique and ignored the context of an enterprise's social and environmental impacts.
Many tools and rating agencies are evolving. Therefore, treating this information as one data point is appropriate, but measuring social and environmental impact is complex. Accordingly, to maximize impact, enterprises must adapt impact measurement and management.
Read More: Attribution Vs. Contribution To Impact Measurement
Program Reporting, Storytelling, and Visualization
Often, asset managers and enterprises agree on key indicators and targets to track their company's performance. As a result, agreed-upon indicators are not a proxy for impact. Asset managers often use this to report portfolio results. In some cases, progressive asset managers can also provide their portfolio companies with tools to collect raw data so they can aggregate indicators. Program reporting focuses on output metrics and not outcomes. According to Maoz (Michael) Brown, Head of Research at Wharton Social Impact Initiative, "impact metrics are often considered a proxy for impact, but in reality, there is just no correlation. "While this approach helps determine which enterprise to invest in, it should be distinct from social performance improvement.
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Critical characteristics of program reporting are -
- Focus on aggregating program output and activities data
- Data can be qualitative and quantitative
- Funders often use surveys to aggregate results
- In many cases, funders can determine if their portfolio achieves its target. However, it is not indicative of the program/investment outcome.
- Focus on storytelling
Impact Storytelling Infographic
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Impact Measurement
Impact measurement focuses on commonly accepted evaluation techniques such as social return on investments, outcome-based data reporting, and randomized control trials. While methods and resources to measure impact vary, this approach does require a systematic collection of data from stakeholders. Nevertheless, if done correctly, it can highlight areas where improvements are needed—unfortunately, many end up using this approach to justify impact rather than continuous learning and improvement.
Essential to effective impact measurement is a well-defined data collection strategy, a stakeholder survey aligned to five dimensions of impact from the Impact Management Project, proper data collection techniques aligned to different enterprise and stakeholder needs, and practical analysis to understand the longitudinal study. The figure below step by step process of achieving outcome-based impact measurement.
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Impact Measurement and Management
Impact measurement and management are helpful for enterprises interested in improving product-market fit, services-market fit, and program-market fit. It is a valuable tool for achieving faster growth and success. This approach often requires collecting data from stakeholders (direct and indirect). This approach provides a constant understanding of program needs, ensuring that the investment focuses on the right demographics, outcome, contribution, scale/depth of impact, and impact risk.
IMM is often beneficial to an enterprise that believes in a data-driven approach to ensure faster success. Achieving the most accurate results typically requires data from multiple sources continuously. Therefore, organizations use an impact experiment-based policy to achieve the most effective results. The figure below explains how you can start this process by connecting existing data to dashboards, identifying gaps, and focusing on key outcomes to improve outcomes continuously.
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Comprehensive social and business data intelligence is the foundation to achieve impact measurement and management. Therefore, in addition to impact measurement, you will need to focus on the following to achieve effective results from IMM.
- Focus on the primary outcome
- Unify internal and external data to understand the impact evidence
- Make sure all data sources are connected all the time (real-time)
- Dashboard Always combined with data sources
- Impact analytics designed to focus on comparisons, benchmarking, scoring, and aligning with the five dimensions of impact from the Impact Management Project
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Impact Management Project
An impact management project is a systematic approach to identifying, assessing, managing and reporting the social and environmental impact of a specific investment or business operation. The steps in an impact management project typically include setting goals and objectives, collecting and analyzing data, monitoring and reporting on progress, and making adjustments as needed. C. Examples: An example of an impact management project in the investment context might be a renewable energy project that is tracking the reduction in greenhouse gas emissions resulting from the project. An example in the enterprise context might be a company implementing a program to reduce its water usage and reporting on the resulting savings.Impact Management project defines five dimensions of impact for each of its effects on people or the planet: intended and unintended, positive and negative. For each effect, the level of performance is evaluated for all five dimensions.
The real challenge is that the investor should use a data-driven approach to assess impact. This is where Impact Cloud provides a flexible foundation of cross-reference services that allows the evaluator to assess results based on external and internal data.
What are the 5 Dimensions of Impact?
- WHAT
- WHO
- HOW MUCH
- CONTRIBUTION
- RISK
Integrating Investor’s Impact Matrix
As investors gather better asset-based evaluation, the next task is to map their existing portfolio and then, over time, transition that portfolio to be impactful in the way that best suits their intentions and constraints.
Sopact Strategy aligns enterprise with investors
How Impact Funds Collect Results Today?
Private equity impact funds that often invest in the impact assets often have two types of investments.
- Most impact funds align around IRIS-based impact indicators.
- Often collect results in the form of spreadsheets or do not collect any results at all
- Mostly choose three or more impact metrics from the IRIS+ profile and target
- According to a Wharton study, often 97% of the impact funds claim they beat targets, but deep analysis claim most do not ask for an outcome which is what is at heart of achieving impact.
- Often aggregated results are often limited.
- Use B-Analytics for GIIRS rating, but do not consider this a company's ESG, not the product or service's impact on stakeholders.
Depending on their relationship with the investee, they often work with the investee to aggregate results, often in google spreadsheets or excel based approaches.
- Sustainable Development Goals (SDGs)
- IRIS Metrics
- GRI Sustainability Reporting
The Sustainable Development Goals are a set of 17 objectives announced by the United Nations in 2015. The purpose of the goals is to spur global collaboration, mobilize capital, and catalyze new solutions to the world's most pressing problems.
The Goals enable organizations of all types to frame their impact in terms of these categories and measure progress using the UN's comprehensive indicators list.
For example, for SDG 7: Affordable and Clean Energy, there are 5 general targets and 6 indicators. The target is more of a global goal (e.g., "By 2030, double the global rate of improvement in energy efficiency") while indicators can be measured on an organizational level by funders and their assets (e.g., Indicator 7.1.1 is the proportion of the population with access to electricity.)
The most used impact investing metrics, IRIS, is a standardized system originally conceived by the Rockefeller Foundation, Acumen, and B Lab. They were built upon dozens of existing standards from a variety of sectors. Today, there are about 400 metrics in the IRIS catalog, which can be accessed for free. An example of an IRIS metric can be seen in the image below.
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The Global Reporting Initiative (GRI) developed the world's first standards for sustainability reporting. Organizations use these standards to guide the information they disclose regarding social, environmental, and economic impacts. It also includes a set of principles to structure that reporting process further.
The GRI has a comprehensive resource center to help any organization start using the GRI as a reporting framework. This includes a document detailing how to link the GRI standards with the SDGs. For a document detailing how to connect GRI with IRIS metrics, click here.
Impact management framework
Recently we heard Sara Olsen do this talk, and her ideas resonated. They were as follows...."
Demand for social value accounting (mainly driven by impact investors needing to be able to account for those returns) has led to the emergence of frameworks that can support that journey and help us get closer to a consensus about how to do that.
We're not just talking about those early frameworks -- ESG, Venture Philanthropy, Social Impact Bonds, etc. -- which tend to be targets of criticism even while those critics overlook the inertia those frameworks have built to help us further refine impact management and creation.
We're talking about frameworks developed by organizations like Social Value International (SVI) and the Impact Management Project. Both have developed frameworks that support the actionable implementation of impact strategy, from design to reporting.
Social Value International
We'll start with SVI. Founded in 2008, the organization has consistently developed clear frameworks to promote social value accounting across sectors. Specifically, they led the Social Return On Investment methodology, or SROI, which employs financial proxies to quantify social values (outcomes). In addition, they offer training and even accreditation, further promoting the movement toward standardization of certain practices. Also, SVI developed the Seven Principles of Social Value.
Source: Social Value International
It is no accident that "Involve stakeholders" is the first principle. Indeed, many of the following principles would not hold as much weight if they weren't considered vital stakeholders, especially beneficiaries, in mind.
In a recent webinar hosted by Sopact, Sara Olsen (founder of SVT group), when talking about impact management and the Seven Principles, emphasized: "If there is one universal in impact management, it is the importance of stakeholder's voice."
Of course, all impact practitioners would agree with that. There has been little disagreement in the sector about the importance of each of the Principles developed by SVI.
However, a lack of resistance or disagreement doesn't necessarily correlate to the widespread application of those principles. This brings us to our second organization, which has developed frameworks to catalyze actionable impact management.
Impact Management Project
The Impact Management Project emerged to address those calls for more transparent impact management and measurement structures. Their primary directive is just what those critics call for consensus.
At this moment, they have successfully convened under their platform more than 2,000 organizations (including Social Value International and Sopact) to share best practices and debate technical topics to get closer to a broader consensus on accounting for social value.
So, in what areas has some consensus been reached? First, a significant milestone was reached when member organizations worldwide agreed on the Five Dimensions of Impact.
You'll notice that the SVI Principles developed before the Five Dimensions are aligned with these five impact measurement areas. For example, Value Things That Matter is aligned to the What and Who dimensions. Many of the Values encompass multiple Dimensions, demonstrating that SVI's framework is an excellent place to implement impact measurement using the Five Dimensions.
So, what else is needed to go from consensus to action?
Practitioners need to have access to the right tools. There's one in particular which can serve the needs of those practitioners from end to end. But before sharing that tool, let's examine the buy-in element from vital internal stakeholders because that will always be key before adopting any new tool.
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