Producing a universal model for impact measurement has been seen for years as the ‘holy grail’ for impact investing. But a new project sponsored by the likes of BlackRock, Dutch pension fund PGGM, PIMCO, DFID and the Ford Foundation is challenging this mind mind-set.
The initiative, called the Impact Management Project, is designed and facilitated by Bridges Fund Management and has brought together over 600 industry practitioners. At a recent Economist event on impact investing, Clara Barby, a Partner at Bridges, said focusing purely on impact measurement wasn’t helping to move the market forward, and proposed a shift to focusing on ‘impact management’ instead.
“Impact measurement is best viewed as a means to learn and make better decisions”, said Barby. “If we are comparing investments based on a single metric like ‘number of jobs created’ – which mixes jobs of varying quality and duration, for very different demographics – how does that teach us anything about which investment product is more or less impactful?”
Speaking to RI, Barby says the project builds on an earlier collaboration between Bridges and UBS to create model impact investment portfolios for a typical fiduciary investor.
“Our previous work looked at what having any kinds of impact goals means for your financial goals,” says Barby. “What it didn’t look at is the more interesting question – what do your financial goals mean for the type of impact goals you might have?”
“We thought it would be interesting to create a series of portfolios, as there are different types of investors. But we realised that we couldn’t frame the impact goals in a way that everyone would immediately grasp – because there are no widely shared conventions for talking about impact.
“And we didn’t want to get hung up on jargon. We could talk about ESG integration or responsible investment – but we thought if we did that, we would perpetuate the confusion. What we wanted was a way of talking about the impact goals of these portfolios in terms of their actual effects on people and planet, rather than getting caught up in categories and labels.”
The Impact Management Project has been working over the past six months on finding points of consensus on how to frame ‘impact management’ – described as the ongoing process of trying to generate material positive effects for people and planet (which includes trying to prevent material negative effects).
It has involved a wide range of stakeholders globally, from people experiencing the effects of impact projects, to social entrepreneurs, multinationals, corporations, funders, investors, policy makers and multilateral organisations.
“It’s not often that you get large global asset managers finding consensus with social scientists from South Africa, start-up entrepreneurs from Brazil and multilateral institutions about how we talk about and manage impact”, says Barby.
Toniic, a global community for impact investors, has been working closely with Bridges on the project. Other close collaborators include B Lab (the organisation that certifies B Corps), Barclays, consultancy firm Tideline and the Global Impact Investing Network.This work has led to consensus on five shared dimensions that any impact investor should manage and report on:
• Who is experiencing the change – demographic and geographic?
• What change they experience, framed as an outcome – for example good health or financial security?
• How much change happens – broken down into deep vs marginal; short term vs. long term; many people vs. a few people?
• What contribution are you making to the change? (Barby says this is the test of whether it’s worth doing and is often part of standard market analysis/benchmarking that we do commercially anyway)
• Level of impact risk? – i.e. the likelihood that the desired impact won’t be achieved
Barby says: “These five dimensions come up time and time again across the spectrum. If we all talk about our impact across these five dimensions to people we’re working with, everyone else will know what we are talking about when we say we’re having an impact.”
Barby says the five dimensions would be parallel to the basic convention in finance where financial goals and performance are widely conveyed in terms of risk, return, liquidity and volatility – and allow different stakeholders to recognise each other’s description of what they are doing. “It would be impossible to uphold the notion of fiduciary duty if we didn’t have that shared convention”, she says.
On impact measurement, Barby doesn’t think there is a single silver bullet. But she does suggest that if a groundswell of people use the impact management approach, it will be easier to understand which impact measurement tool will help us to learn and improve in different contexts. “Enough precision for the decision”, she says.
“We argue that all investments are impactful. The trick is to figure out what the impact is – and therefore we need a shared approach across all investments in terms of thinking about and managing impact within that broad tent. And when you get clear on what change you are making across those five dimensions, then you’ll get really helpful differentiation across investment products.”
The Impact Management Project will formally launch when it shares the body of work that practitioners have agreed on next month. Following this, Barby says there will be executive training around the approach, and also a handful of leading players will champion impact management and demonstrate it in action. This will likely include a leading foundation, a leading multinational and a leading pension fund.
Barby expects that the concept of ‘impact management’ will evolve over time.
She also hopes the Impact Management Project will help to break down barriers across disciplines: “I hope that you have people breaking bread together across disciplines. At the moment responsible investors are not breaking bread with hardcore impact investors.
“I would like to see this project leave people thinking we are all in the same club – but also see clear differentiation within that club. It’s not one bucket, but we are part of the same movement. I think that would be a healthy outcome from a market segmentation perspective.”