Unmesh Sheth 9/9/21 7:16 AM 20 min read

Seven steps to build IMM maturity for your impact portfolio

Social enterprises, businesses, or nonprofits play a pivotal role in addressing societal and environmental problems and are well-positioned to affect societal change. The impact investors, accelerators, or impact funds have an excellent opportunity to invest in these global causes catalyzing this societal change and achieving social impact. However, significant challenges exist as most investors often cannot find qualified impact portfolios (nonprofits / social enterprises) to scale financial and social impact. This results in not nurturing these social enterprises/nonprofits and not increasing their social return on investment over time. 

These challenges raise important questions
  • Is the ecosystem not robust enough for scaling social impact? 
  • Are the right approaches not being adopted consistently to maximize the social impact of investments and programs?  
  • Does Impact Measurement and Management (IMM) approach require transformation?

Traditional Approaches: Impact Portfolio Management

To answer these questions, let's evaluate the traditional approaches adopted by impact investors or enterprises or asset managers leading social impact portfolios of investments or programs to measure the impact of programs and investments for maximizing the impact. Any investor leading a portfolio of social impact investment or program understands that measuring the impact of their investment portfolios is crucial and identifies that their role in IMM is to establish a learning framework between them and the investees. They often start by building on an in-house impact management team or relying on an external impact advisor.

The first approach: An in-house impact management team

In this approach, the organization builds an in-house impact management team. This team begins by developing an impact framework using well-publicized frameworks like IRIS+, GRI, Guidestar, etc. However, soon they realize the practical challenges of implementing these frameworks using global indicators across the impact investing portfolio with diverse impact themes and goals. They also recognize that it is difficult or impossible to achieve goals with more than 20 outcomes! As a result, they resort to cherry-picking their metrics with investments and wash their impact based on limited and often irrelevant ‌ ‌outcomes. This provides very little value to social impact portfolios (enterprises/nonprofits) to improve product/services decisions and maximize their social impact. 

The second approach: External impact advisor

In this approach, it is commonly observed that these impact advisors often hire enumerators in specific countries who use standardized surveys to collect data from stakeholders utilizing various data collection methods. These often result in the following challenges :

  • Provide limited evidence of impact during the due‌ ‌diligence‌ ‌stage
  • Provide little value to enterprises that want to improve product/service decisions‌ and‌ ‌maximize‌ ‌social‌ ‌impact
  • Do not represent key impact dimensions, nor is it continuous and limited in time
  • Have higher cost 

In short, both these approaches intend to measure the impact of the investments or programs; however, it is ineffective as they undertake practices that do not provide evidence-based learning by engaging with stakeholders' experience. Only a well-defined ladder can bridge the real chasm for these enterprises/nonprofits with clearly defined steps to maximize social impact. The investors can adapt top-down or bottom-up impact management processes. In addition, they must realize that real impact will be realized when these social impact portfolios i.e. social enterprises/nonprofits have the correct strategy, data collection, and analytics to manage the impact.

So, what's a practical approach? 

In this approach, the first and most crucial step an impact investor, accelerator, or impact funds undertake is to build an impact maturity model for the pool of social impact investments or programs. 

To build this model, the investor first evaluates where each of their social enterprises/nonprofits stand. They access the maturity by asking how investees learn desired outcomes from their stakeholders, collect the right stakeholder feedback, and use the data to make decisions about their products or services. At SoPact, this process is also called Impact Maturity Assessment of the social impact portfolio.

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This model helps these investors to build an appropriate Impact Measurement and Management(IMM) framework based on the impact maturity of each of the impact investing portfolios (social enterprises/nonprofits). In addition, it helps to keep track of how their contribution in terms of financial /non-financial is moving the needle for these investees/grantees. Thus, improving the traditional standardized processes and creating a maturity-based approach is the best way to save tremendous costs while consistently enhancing social enterprises/nonprofits' social outcomes. 

Maximize the social impact of Portfolios

Advantages & Challenges of assessing IMM maturity of a portfolio of investments : 

Improving the IMM maturity of investee/grantees (social enterprises/nonprofits) throughout the engagement also gives investors the confidence of their sustained impact (OPIM/IFC principle 7). Some grantee organizations may need substantial enhancement in their IMM process, and some may have a clear data collection and learning process in place.

Organizations( impact investors/accelerators/impact funds) with clear and consistent IMM practices will have:

  • Opportunities to save resources by allocating capital to impactful projects and take learnings from one chapter to another, etc
  • New investments with transparent results
  • Resources to maximize impact by scaling what is working and cutting back what is not working in the programs and investments

So, what are the challenges?

  • Needs strong commitment to impact management at fund and portfolio/program ownership level.
  • Require internal buy-in
  • Perception is that it is time-consuming
  • Requires additional budget from internal or external sources
  • Slow to set up the process and technology
  • Difficult to gain consistent results from impact investing portfolio companies or programs
  • Difficult to move from output to outcome 

Step by Step approach to building an IMM maturity model 

SoPact has worked with leading impact investors, accelerators, and impact-first funds to build a maturity model. We recommend the following step by step approach -

1 Agree on short/medium terms impact experiments

For example, inviting a group of companies with the equivalent impact theme, say smallholder farmers. An organization working with cacao plantations, palm oil, or grains can start with few limited outcomes. If the core outcome is not practical or applicable; the enterprise should focus on the most crucial outcome.

2 Modify the important outcomes to make them specific to the investment

For example, the above investment with IRIS+ Small Holder Farmer is to be modified to meet internal goals.

3 Design impact management capacity survey to assess the actual capacity

  • Finance and business maturity
  • Understanding of demographic (WHO)
  • Collect sentiment regarding product and services (WHAT, HOW MUCH, CONTRIBUTION, IMPACT RISK)
4 Define stakeholder data collection process. 

Each organization's stakeholder has different reachability. So plan how to collect their sentiment. Impact management technology platforms can play a crucial role in streamlining data collection, aggregation, and analytics. 

5 Getting ready for analytics:    

The key question is that who will be responsible for integrating data and building analytics? Initially, investors can help but ultimately prepare the enterprises for phase 2 to take responsibility for continuous learning and improvement.

6 Build a real-time dashboard: Every enterprise/nonprofit should have an incentive to collect data. The dashboard can help them motivate themselves for an outcome-driven journey.
7 Define an improvement plan for the next year and actual implementation agreed upon between different stakeholders.
 

Conclusion:

Often this process starts with conversations with impact investors/accelerators/impact funds. The next step is to work with the pool of their investments portfolio to build a consistent design across each. Finally, we often recommend building an internal impact management capacity or working with impact management capacity builders who can help develop a systematic end-to-end impact management capacity of investments/programs.

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Unmesh Sheth

32 years of track record In technology companies, innovation, leadership. Deep understanding of bottom-up and top-down data trust challenges in high impact philanthropy and impact investments.