A New Way to Assess Social Impact
Over the past several months there has been an appropriate and necessary shift to determining and/or quantifying the “impact” within the impact investing space. Large amounts of public and private money have been invested in institutions and instruments that track and demonstrate the social impact of an investment. For example the sector currently uses GIIRS and IRIS as its primary assessment tools. One assesses the financial and social return of funds, and one rates the social impact of companies the funds are invested in. The challenge is that both tools assess impact after the investment is made and not before. It is widely accepted that due diligence is one of the most expensive parts of the investment process. Therefore it is surprising that not much research or new investment has been made in this area to reduce the costs of due diligence and improve ROI.
The introduction of a pre-investment social impact tool could help create better metrics for tracking post-investment performance by investors and entrepreneurs. Moreover it can provide valuable data to other potential investors to make well-informed investment decisions moving forward.
Through my work with GSEI, over the next year I will be working with a group of Georgetown MBA students to take on this challenge of creating new assessment tools for the sector. The intent of our work is to decrease due diligence costs, infuse more relevant data into the investment decision-making process, and create a set of aggregated data points to advance the field as a whole. The intended outcome is that better social screening before the deal is made will enhance, if not accelerate, the social outcomes due to improved oversight, understanding and tracking of social outcomes, and increased clarity around goals, objectives and performance.
As the tool enters its development phase, there are a few tenets that are being considered:
- There is a need to create a common language and understanding around social impact. Currently the sector uses return, impact, benefit and values interchangeably; they are by no means equal or the same. We hope the tool will develop a standard nomenclature that will help advance a common understanding of social impact within the ecosystem.
- The tool will include both qualitative and quantitative measures. The story is just as important as the numbers. Too often we are focused on numbers, which can be highly subjective based on the questions asked and the research tool utilized. Therefore it is our intent to leverage a wide variety of data points and medium to assess the social impact of an enterprise.
- Collecting the data is just as important, if not more, as the assessment. Therefore the proposed tool will take into account data from the investors and entrepreneurs. Most importantly, the tool will also engage the clients themselves. It seems odd that most tools currently do not engage the recipient of the proposed social impact into the assessment process.
- The tool will be connected with existing post-investment tools to help create a standard set of metrics to be tracked throughout the life of the enterprise. We will also use the tool to provide longitudinal data, which will allow stakeholders to assess environmental and sector changes as well as any anomalies.
- The proposed assessment tool would aggregate long-term data, and will ideally drive sector improvements and policy enhancements.
I am enthusiastic about the potential of our collaborative work on the new assessment tool and how it will advance the field. It is important that while we seek to increase impact investing in both the public and private sectors, we continue to apply rigor to our inputs and outputs to insure the longevity and success of the work.
*Melissa L. Bradley is a Global Social Enterprise Initiative Executive-in-Residence and adjunct professor at Georgetown University’s McDonough School of Business.