More than measuring, we need to manage our impact
23 Oct 2017 by Stefanie Kneer & Amanda Feldman, the Impact Management Project
While the impact investing field has shown tremendous growth and innovation over the past few years, there are still far more asset owners sitting on the sidelines, interested in impact, but not yet investing. There are many reasons for why interest might outstrip activity. One is the lack of scaled investment products. Another reason is that we still haven’t defined what we mean by impact. While the field has progressed a lot over the last decade on the question of impact measurement, we would argue that the challenge going forward rather may be more a question of impact management.
Why do we need to manage our impact?
Everything we do has effects on people and the planet. To manage our effects, we rely on information about them flowing between different people who work together: from those experiencing the effects themselves, to those who run the businesses they engage with, to those providing capital, support and services to those businesses. We can only work together to improve our effects on people and the planet if all partners share information in a way that others can understand. Shared information informs the financial and impact goals we all set and deliver against, and allows us to adapt our approach as we learn more about what’s working (or not).
In Finance, we have developed shared fundamentals - financial return, volatility, liquidity, etc. – and asset classes, grouping investments with similar characteristics. Financial capital flows, and the investment management ecosystem has grown, not just because we have common accounting standards but because we have evolved this shared way of understanding performance, and therefore communicating and aligning our goals. It would be impossible to uphold any notion of “fiduciary duty” if we didn’t.
The Impact Management Project is trying to address this need. It is a collaborative, open-source effort by over 700 organizations, from different contexts and countries, to agree on shared fundamentals for how we talk about, measure and manage impact – and therefore our goals and performance.
What information do we need to understand impact:
For impact, we now have a shared understanding we need to consider five dimensions:
- What outcome, positive or negative, the effect drives and whether it is important to the people or planet experiencing it. We may decide that an outcome is important based on our own opinion, or guided by professional experts, or through shared consensus like the Sustainable Development Goals.
- How much of an effect occurs by considering its significance, based on:
- How big a driver the effect is of the outcome (Depth)
- How many people the effect occurs for (Scale)
- How long the effect takes to occur (Rate)
- How long the effect lasts for (Duration)
- Who experiences the effect and whether they are underserved in relation to the outcome(s).
- The Contribution that the effect makes to what is likely to occur anyway.
- The Risk that the effect will differ from our expectation.
The five dimensions of impact guide the data that we collect, analyse and assess, so that we can understand our impact and improve (or re-set our goals). The impact experienced by people and the planet cannot be understood or benchmarked if we only have data about one or two dimensions out of context of the others. We therefore try to collect data as a ‘set’ across the five dimensions of impact, alongside data about financial performance. Over time we would hope to build up enough evidence to illustrate how a difference in one or two dimensions of impact affects the result across other dimensions but, for now, this information is useful for managing impact if kept in the context of all dimensions.
Why are those fundamentals helpful for enterprises and investors?
Any enterprise directly affecting people or the planet – whether a large multinational, a small business or a non-profit – has an interest in understanding the impact it has, positive or negative. Some see it as a way to unlock commercial value (for example, cost-cutting through energy savings or increasing workforce retention or customer loyalty) and some just believe that businesses should respect society and want to live up to that ideal.
Whatever their agenda, shared fundamentals allow enterprises of all kinds to understand the impact goals of others (from their customers and employees, to investors or funders, to policymakers), so that those working together can agree on how best to deliver and improve.
Investors also need shared fundamentals for understanding the effects that different underlying enterprises – or portfolios of enterprises – have on people and the planet. Without this, we are faced with a growing array of labels that make it hard to understand which investment products offer investors the best chance to achieve their intentions and goals.
All findings from the Impact Management Project can be found at www.impactmanagementproject.com, available under a Creative Commons license. Join us as we continue to refine these shared fundamentals and develop templates and training materials through 2018.