Introducing Impact Strategy
Theory of Change, Logic Model, Theory of Action, Five Dimensions of Impact, IRIS themes, Sustainable Development Goals, IFC principles, Shared Value principles, … are confusing methodologies, principles, and guidelines.
-Where do you start?
-And what framework should you align your impact measurement to?
Impact Strategy allows social purpose organizations to design an effective impact management strategy to measure and manage the impact. Regardless of the impact segment you represent, it is important to develop an impact strategy, target smart capital, and interact with investors/funders. And our view is that to be successful in executing that funding journey, you must first have a well-defined impact management strategy, which includes developing an effective social impact measurement framework.
Over the years at Sopact, we talked to many different organizations and analyzed our learnings. What works and what makes sense for each organization depends on where they are in the impact ecosystem. Often Impact Investors, Impact Funds, Asset owners, and Foundations follow a top-down impact approach. They collect results or summarized metrics from their investments, for example, the number of jobs created. While non-profits, small-medium enterprises, and social businesses work directly with the end beneficiaries, follow a bottom-up impact approach. They often collect data from their stakeholders to understand the real change. With the same goal, their approaches in achieving and measuring impact are different.
This article is to share best practices of designing impact strategy from top-down and bottom-up.
What is changing?
In 2018, the impact investing sector roughly doubled in size. The Sustainable Development Goals continue to emerge as a preferred framework for entrepreneurs, investors, governments, and others. Other emerging trends include the interest in Opportunity Zones as affordable housing investment opportunities. Place-based impact investing and Social Impact Incubators are becoming popular too. Even businesses, nonprofits, INGO, and social businesses see a strong interest in defining social impact strategy. Covid-19 has taken impact investing to the new height.
More and more people are asking today,
- How to raise impact capital?
- How can a business demonstrate impact?
- How should philanthropy continuously learn and improve the social impact?
Impact Strategy provides a foundation based on the most common frameworks. While there are many standards, frameworks, principles, or certifications, your goal ultimately drives the framework's choices. Impact principles such as Social Value International and Shared Value ensure that you follow best practices associated with the goals. Principles or certifications are optional but critical as you mature your impact management or sustainability approaches.
Impact Strategy binds frameworks with external standard metrics, custom metrics, and SDG alignment. This alignment helps data collection, data aggregation, and impact reporting.
Business strategies for social impact
The social impact ecosystem is complex. Usually, capital flows from Impact Funders (Asset Owners) and Impact Managers ( Asset Managers) to Impact Makers (Assets). Social impact data should seamlessly move up to intermediaries and funders.
To scale impact, each of the key impact ecosystems must develop,
- Common KPIs (indicators): Establish the common language of outcome between the funders and stakeholders with standards
- Capacity: Build data capacity to improve data trust
- Collaboration: A streamlined approach to understanding the impact
SoPact enables each impact ecosystem player to have a consistent social impact framework that can be uniformly applied across different organizations. Having a consistent process across all the sustainable organization types helps to achieve impact goals. Each organization may have a unique and advanced process specific to them.
As we improve the flow of impact data from beneficiaries to funders, more capital flows towards social impact.
- Asset Owners
- Asset Managers/Intermediaries
Asset owners are institutions or people who own the assets and use the Asset Managers to manage the underlying assets.
Examples: Impact funds, Grantmakers, Social Impact Accelerators, Foundations, Family offices, Pension funds, Endowments, Insurers, Banks, Sovereign wealth funds, individuals, etc.
Impact involvement level: Low.
They do not have a direct connection with the end beneficiaries and only collect result data, if any, from the intermediaries. Where to start?
- Start with impact intention
- Choose appropriate framework
- Collaborate with asset managers and intermediaries to adopt an outcome-oriented approach
Asset Managers are managing the assets on behalf of Asset Owners. They make investment decisions within the defined guidelines. The process of managing assets has a dual mandate - appreciation of an Asset Owner's assets over time while mitigating risk.
Examples: Financial institutions
Impact involvement level: Medium
ESG is increasingly becoming an important element in investment decisions though environment and sustainability are part of social impact but not instead of social impact.
- You can also align with sustainable development goals.
- Consider choosing IRIS+ metrics.
- Five dimensions of impact enable you to understand what is changing and how much and the impact risk before investment.
- Define and collaborate on receiving the impact evidence at an agreed-upon frequency (quarterly, semi-annual, annually)
Assets are the organizations such as social businesses where Asset Owners and Managers have invested or allocated the capital.
Examples: Investments, non-profits, grantees, small and medium businesses, social enterprises, social businesses, etc.
These organizations often directly work with stakeholders or end beneficiaries.
Impact involvement level: High
Assets working in social impact space can learn from their stakeholders what is changing. It is a valuable information that can be used by intermediaries and Asset Managers while making investment decisions.
Partner with an IMM expert organization if,
- You know your business is impactful and needs evidence.
- You are not familiar with any impact measurement frameworks.
- You have a strong intention to move beyond business KPI to social outcomes.
- You want to track and align with external benchmarks or SDG.
- You know that impact evidence can bring impact capital.
Impact Strategy Checklist
- Start with defining program structure
- Identify your stakeholders
- Design an effective impact statement for your program from mission and vision aligned to impact ecosystem
- Choose correct framework such as Theory of Change or Impact Management Project based Five Dimensions of Impact Framework
- Align your short and medium-term outcomes with standards-based impact metrics or design custom metrics
- Have a clear data map for each indicator
- Plan for stakeholder feedback to learn outcomes
- Provide metrics results context such as REPORT FORMAT, Label, Usage Guideline, Help-Link, Example Answers, etc.
- Learn your impact frequently to be able to correct what is not working and growing what is working
STEP BY STEP IMPACT STRATEGYActionable and Operationable
Impact Statement starts with, “What is the problem that we are trying to solve?” Impact Statement is often derived from your mission and vision but is quite definitive. Impact Statement leads to Impact, Outcome, Output, Activities, and Input.
Impact Strategy is an intelligent knowledge graph for an organization that can automate data collection, data aggregation, and dynamic impact learning. Remember each program or project also needs an impact strategy that helps them specific data collection and aggregation.
A solution such as Impact Cloud® is designed based on a modern configuration-based approach, it allows an organization to improve the impact framework as their understanding of social and environmental impact grows over time.
Feel free to use our free actionable impact management eBook to guide you further.
THEORY OF CHANGE
The Theory of Change is a foundation to build an impact measurement framework. Depending on background, many organizations may use different terms such as
- Theory of Change
- Logic Model
- Log Frame
- Results-Based Accountability (RBA)
Regardless of whichever framework you use, the main goal for each of them is to define a systematic impact map (or impact chain) with measurable short-term, medium-term, and long-term outcomes (often called output, outcome, and impact).
While most organizations have a theory of change or a logic model as a starting point, they fundamentally do not connect outcomes of a theory of change (TOC) or logic models with their key indicators, data strategy, and reporting. This creates a massive disconnect between their actual mission & social change results.
IMPACT MANAGEMENT PROJECT
Impact Management Project is relatively new but gradually becoming popular. Thousands of impact practitioners are aligning around this framework. Impact Management Project gives better 'impact accounting' guidelines to both Investors and Enterprises. Most organizations can benefit from enterprise-specific impact management projects. At the same time, most impact investors may naturally find it easy to use; we recommend that others consider "Five Dimensions of Impact," which allows a better understanding of stakeholder's impact. By ensuring the right survey questions aligned to the following Five Dimensions of Impact, they can demonstrate impact better!
- HOW MUCH
- IMPACT RISK
Depending on the relationships, the asset owner, asset manager, and the asset must develop an effective collective impact process. The purpose of the collective impact process is to enable a downstream organization better n to understand the outcomes, collect the right data, and share data with funders with a higher level of trust. So how do you build such an alignment?
Listen to Chris Gaines, Lead Trainer at SoPact, on how you can build a better alignment.
IMPACT FRAMEWORKS RESOURCES
Here are few resources while you are building your impact strategy.
GIIN has been working on IRIS+ and Navigating Impact. This is a significant Impact Knowledge collaboration with over 100+ impact strategies globally. The new release of Impact Cloud will include all the Navigating Impact Impact Themes.
Impact Management Project (IMP): The IMP is a forum for building global consensus on how to measure, manage, and report impact. Impact Cloud is perhaps the first impact measurement & management platform to support IMP.
Social Value International: While Social Value International (SVI) has been a pioneer member network organization. In recent times, SVI is increasingly focusing on Impact Measurement & Management (IMM). Impact Cloud is a certified Social Return On Investment (SROI) application. SoPact is aiming to further align with SVI on the future IMM certification process. SoPact is one of the few partners of SVI and organization member both.
EVPA: EVPA builds a community of organizations interested in or practicing venture philanthropy (VP) and social investment (SI) across Europe. EVPA has recently published the Impact Strategy journey, which very well aligns with SoPact’s Actionable Impact Strategy approach.
TONIIC is the global action community of impact investors. Their vision is a global financial ecosystem that operates to create positive social and environmental impact. TONIIC T100 Project is a multi-year study of over 75 Toniic 100% Impact Network members' portfolios. It reveals new insights about the various paths towards and feasibility of 100% impact investing (impact first approach). Impact Cloud integrates mapping of TONIIC portfolio definition and SDG-IRIS Impact Map.
ALIGNING RESEARCH TO IMPACT STRATEGY
- How effective is my investment?
- What outcomes does it generate?
- Which impact framework will generate the best results?
- What are the core characteristics to drive impact?
The following guide provides the best way to build a robust case without a formal, longitudinal study and save tremendous research money!
- Campbell Collaboration
- Cochrane Collaboration
- What Works Clearinghouse
- Cost-Effectiveness Analysis (CEA) Registry
- PRIME Coalition on how they're thinking about measuring the future potential climate impact of early-stage impact
- For large asset owners, U2’s Bono and TPG Launched Company to Measure ‘Impact Investments’ - YAnalytics.