An Impact investor seeks to produce beneficial social or environmental outcomes. In international development & carbon markets, this is called additionality. With this core concept in mind, we define Impact Investing as a practice of placing capital in enterprises that generate social or environmental benefits such as creating jobs with expected financial returns.
While Impact Funds deliver positive impact around the world, they face a challenge in accurately analyzing and communicating their Impact Data to stakeholders.
Thanks to international organizations such as the Global Impact Investing Network (GIIN) and the United Nations that have laid out metrics to evaluate impact, there still seems to be a problem when it comes to deploying the right metrics to communicate the organization’s impact story.
Metrics & Data Collection
The success of an Impact Fund is directly related to the effective communication of its impact initiatives. When does that happen? Only when the right metrics are deployed to measure the outcomes of the program.
The use of vague terms in the annual report such as “impacted the community” might hurt the credibility of the impact fund. Having the right data to present in an impact report is of paramount importance to an Impact Fund primarily to fundraise and test their impact hypothesis especially for a non-existent track record.
Collection of Impact Data in order to create the impact report poses its own set of challenges. Some of them are the timely collection of data from different locations and the rate of accuracy among many many others. Having said that, Impact Funds sometimes faces reporting fatigue due to massive stockpiles of excess data.
Reporting & Communication
When it comes to reporting, there is no universal format of an impact report. It all depends on the type of organization (i.e., Impact Fund, Nonprofit, Social Venture, etc.) and the motivation for the impact storytelling. However, every impact report carries the organization’s impact framework which explains how they measure impact, data from the field activities which can be both - quantitative as well as qualitative.
The investee in a transaction has to compulsory report its social activity to the investor. Such reportings are not only meant to justify the purpose of the fund but also hold the investees accountable towards its activities and possibly provide a fair market return to the investors. A clear and concise communication of an Impact Funds programs and the returns enable not only interest from other types of investors (Institutional or Individual Investors) but also aid in adjusting and micro-managing the current impact initiatives to achieve even better results.
Impactful Impact Fund
To sum it up, an Impact Fund not only needs to create an Impact in the society with it’s double or triple bottom returns but also ignite the minds of the socially neutral investors to open up and become aware of the situation of our society where the businesses thrive. Without a healthy community, it would become difficult or rather impossible in the years to come, so we need to act now!
As previously mentioned, Impact Funds are doing a great job, but again “great” is a broad term and it needs to be quantified to know how “great” it is. Thus, we all need to resort to fail-proof, air-tight M&E (monitoring & evaluation) practices to enable collective growth!