How do we assess impact? (And why should we?)

I’m attending the Asian Development Bank’s (ADB) 2nd Inclusive Business Forum for Asia in the Philippines this week. I sat in on an engaging discussion on assessing the merits of impact investments yesterday. Armin Bauer, the ADB’s Principal Economist and the event’s organizer, suggested the need for harmonization of metrics in assessing these efforts. While comparing projects may seem at first blush to be a comparison of apples to oranges (How can we compare the installation of a large-scale solar array, to a small farming project?) the outcomes we’re seeking with impact investments should be fairly similar. We want such investments to improve the lives of those with the greatest need.

Viewed from that lens, maybe the solar array and the farming project aren’t so different?

What should we measure?

Armin shared a list of factors which he considers to be of critical importance when assessing the outcomes of impact investments: reach, depth, systemic change, and innovation.

Reach: How many lives does the investment impact? Are ten people receiving benefits, or ten thousand?

Depth: What sorts of impacts are you providing? This may be both a qualitative assessment (I feel that my diet is better.), or a quantitative one (Are incomes better than they would be for similar work in the region, or is it just a case of “more jobs”?).

Systemic Change: Are your projects altering the way others do business? Are their geographical impacts? (Is it making a broad impact on the region beyond the lives of those directly employed?)

Innovation: Are you devising new solutions that are more efficient, lowering pollution, or creating external benefits, or are you just replicating known solutions?

An attendee furthered the discussion on harmonizing impact assessment factors. He stated that, "Different groups have different needs. Maybe instead of harmonization, we need a common starting point." This seems fair as impact investors may have specific concerns which call for data that falls outside of these central points. But Armin’s response is worth noting for those on the “looking for funding” side of the equation, “Those are the metrics that will get investors to provide funding!”

[bctt tweet="Different groups have different needs. Maybe instead of harmonization, we need a common starting point."]

Why should we do it? The discussion then turned to the importance of assessment, and the need to do so from the outset. Armin suggested that the primary reason for assessment is due diligence for the firm. Doing so can provide critical information for an organization. Testing a plan can help uncover gaps, as well as provide the opportunity to rework solutions.

[bctt tweet="Testing a plan can help uncover gaps, as well as provide the opportunity to rework solutions."]

Armin shared a story of a project that was being set up in a way that it would likely have failed, but thanks to the impact assessment the firm was able to adjust the plan and put forth something that had lower risk, and was better suited to the organization’s goals. It didn’t do everything the original plan set out to do, but it was a viable solution for the things it did include.

Will it make a difference? Erinch Sahan, Advisor of Oxfam’s Private Sector and Programme Strategy and Impact Team, challenged us to think about the larger trend of inequality wherein labor has steadily led of the economic pie offer the past couple of decades. Are impact investments going to push back on this trend, or will gains later be reversed by a coming wave of inequality? A host of participants pushed back on this idea seemingly suggesting that the gap between the lives at the Bottom of the Pyramid, and those feeling the effects of widening inequality were far enough apart to be different concerns, at least for now. I think it’s a valid concern to keep in mind as the goal should be to have that gap narrow, and we might want to concern ourselves with where that convergence point will be sooner rather than later.

Real impacts – Real lives Roshan Miranda, CEO of Waste Ventures shared the story of trash pickers who work in open dumps picking recyclable materials and other items of value as their primary source of income. His program helps these workers make additional income by gathering materials which were previously not being recycled in that region. Workers who were able to realize this extra income shared the following comments:

• “I'm eating better.”

• “I'm able to send my kids to school.”

• “I don't have to raise my kid in a dump.”

For those who are considering getting into impact investing, those are the kinds of comments I’d want to hear.

This post originally appeared at the Practitioner Hub for Inclusive Business.