Measuring Impacts for Investors

The astonishing growth in impact investing in the last decade from a small niche product to a mainstay is a testament of its demand among a large portion of the population. According to the World Economic Forum, this investment class grew 1,000% between 2012 and 2018. As Impact Investing will likely continue to grow, so too will the infrastructure surrounding it to ensure that people are getting the best return, social, financial or environmental, on their investment. Herein lies the need for proper metrics to truly measure the impact of investments, and a comprehensive ability to evaluate programs and projects implemented with those funds.

Proper evaluation of investments to alleviate poverty and address complex social problems is not easy. Indeed, the factors that have led populations to be poor in the first place, marginalization, poor education and lack of basic services, are rarely resolved with money only. As much as poverty is a material problem, in many areas it is also a mentality problem that must be overcome through engagement and mobilization. Probably the best known champion of social investments, Grameen Bank of Bangladesh, have ample evidence that loans accompanied with basic financial education and training results in a far greater ROI compared with no training. Process-specific metrics therefore need to be part of the evaluation matrix.

Under-evaluating impacts can also pose a danger to programs that do not appear as successful as they may in fact be. Synergies between environmental and social outcomes are often difficult to decipher, and may not be fully appreciated. For example, the adaptation of solar panels among rural families not only provide access to light for off-the-grid homes, but they also enhance village air quality and quality of life since they are a potential substitute for generators among the minority of families wealthy enough to afford such devices. Such public goods are not always considered in the equation.

Finally program design is an area that receives little to no attention. Sustainable programs have a clearly defined life cycle in which the local population eventually appropriates its management and long-term implementation. Otherwise, communities become dependent on the program for their economic well-being, and are unable to continue on if ever the organization charged with its development must pull out.

Changing the Rules of the Game…

Once upon a time, large investment projects were the ultimate sign of progress and economic prosperity. The significant environmental social costs paid by the people living in proximity to these projects was pale in comparison to the collective benefits created by increased jobs, royalties and taxes. Communities living on the margins of the mainstream economy were forced to either resist, to move away or, sadly, to eventually be swallowed up by the incoming tide.

Thankfully, this scary scenario is no longer acceptable in many parts of the world. Today, projects must undergo an environmental and social impact assessment (ESIA) that weighs the positive economic impacts with the negative impacts of a given project. Potentially damaging environmental, social, health and even human rights impacts are rigorously measured to allow decision-makers to take an enlightened decision regarding the risks of the project as well as to develop strategies to adequately mitigate these impacts. While far from perfect, it can be argued that ESIA’s have, by and large, allowed for better designed projects. This is especially important for long life-cycle projects such as mines, transportation infrastructure and hydroelectric dams and powerhouses. Even for projects that are ultimately pushed through because of political pressure, mitigation plans are often developed to at the very least minimize the harm they cause.

In many areas, the reverse situation has become all too common: local populations, tired of the accumulation of impacts from numerous projects spanning several generations, are unwilling to allow new projects on their territory. While this resistance often has its merits, clearly our continued dependence on natural resources, energy and the means to get from one place to another requires some infrastructure development from time to time.

How do we overcome the challenge of developing projects that supply our often insatiable demand for resources that nonetheless limit the negative effects on local populations? The key is in the notion of coexistence. It is only by developing effective coexistence formulas that we will be able to create projects that allow for economic growth while limiting the negative consequences, especially for local populations.

Symbiosis is probably one of the most powerful relationships that exists in nature. Two separate species co-existing in close proximity, helping each other to carry out each other’s vital biological functions. As in the case of symbiosis, development in today’s context can only be successful when the proponent and local host communities intimately rely on each other to survive and thrive. This means that projects are acceptable for local communities, who in turn help it to be economically successful. This can be accomplished through a number of ways:

1. Joint monitoring of environmental and social impacts

2. Comanagement of funds dedicated to mitigation and remediation

3. Integration of local entrepreneurs into the project supply chain

4. Training and capacity-building of local actors

5. Permanent committees to address different issues related to the project.

In sum, to ensure harmonious relations between local communities and development projects, sustained engagement must be ensured for the life of the project. In this way, local communities are no longer seen as “rent-seekers” looking to free ride from projects, but instead are essential actors in the project life-cycle who have a clear interest in its long-term success. This is the essence of symbiosis. 

Reconciliation

Reconciliation has become an important buzz word in Canada in the last few years. Rightfully so, it is the process of bearing witness to and, ultimately, overcoming the past injustices that First Nations throughout the country have endured for countless generations so that they can take their rightful place in Canadian society. After all, this was, and continues to be, their land on which we are all living!

It is, by far, the biggest challenge facing Canadian society for the next generation.

How do we achieve reconciliation?

This is not an easy question to answer, and no one act will address the many wrongs that our ancestors have done, and which we in many ways continue to perpetuate.

Resources are usually the first reason that outsiders take an interest in First Nations land. This will not change in the future. However, reconciliation means that the role that First Nations communities themselves play in this process must change. Central to this is governance and self-determination. The decision of how, when and which resources can be exploited over the landscape is fundamental to any nation’s ability to assume control over their territory. Contrary to what many people allude to, it is not about a community’s right to exert a veto over a project (although that right should indeed exist), but more about their ability to have a say in the process of elaborating a development project, such that it does not cause irrevocable damage to their environment, their health and their cultural identity. As this reality is becoming more and more commonplace, we are seeing that First Nations are not an obstacle to development, but in fact positive forces and allies…. They are resources in their own right! That is, so long as things are done well, so long as they are at the forefront in the design and operationalization of the project, there is no reason to believe that development on First Nations lands cannot occur in the future.

Conseil Sym Consulting is a firm dedicated to contributing to this process.

Community Veto

One of the most contentious issues around the discussion on Free Prior and Informed Consent/Social License to Operate/Social Acceptability is whether communities ultimately have a veto on projects carried out on their lands. While this is indeed an important part of the debate, I would argue that it is not as central as people make it out to be. Ultimately, the question of whether or not communities ultimately have a veto will eventually need to be dealt with. However, the implications of such a discussion go far beyond development projects into the role communities can and should play in political decision-making. In other words, not a question that will be easily resolved in the short-term.

In the meantime, I would suggest we look at this issue from different angles. Suppose that a development project has undergone the various review processes, and by all intents and purposes, will be approved to go forward. However, the local community continues to demonstrate strong resistance to the project. Firstly, in many parts of the world (but certainly not everywhere), the authorization process includes important considerations of local perspectives and concerns. In fact, the authorization process is designed to reconcile these differences to come up with different measures to bring proponents and communities closer together. In these cases, therefore, the situation where an authorization would be at odds with the dominant local view of the project would be a very unlikely outcome anyway (assuming that the process actually works, which admittedly can at times be a stretch). Secondly, today’s successful projects are often designed to maximize local input in supply chains and mitigation, to name a few. This would not logically be possible if the local community is not even in favor of the project. Finally, many projects are funded through global capital markets. This is not surprising, given the required initial investment. How would investors feel knowing that their investment is being carried out in an area where most people are against the project. This would pose significant political and operational risk, likely beyond the threshold of many investors.

The most compelling argument for making a project acceptable for local communities is the triple-bottom-line of sustainable development. When proponents engage meaningfully with local communities, when the latter are given a space to share their own vision of sustainable development, which is in turn integrated into the broader vision of the project, good things happen. Communities become resources upon which proponents can draw to address challenges, and partners in the long-term success of the project. In these cases, the veto debate becomes completely unnecessary.