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.