The How-To: Measuring Outcomes Of Impact Investing

With investors becoming increasingly socially responsible, it's time to focus on measuring the impact of impact investing.

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By Zahara Malik

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With the world facing different challenges, including the finite amounts of water, natural resources and land which all are already heavily tarnished by humans, as well as a less predictable climate, one of the major concerns is how to provide for nine billion people by 2050? Impact investing, which involves the placement and unlocking of capital to achieve social or environmental impact with an expected financial return, might be one of the solutions. Impact investing connects financial markets with the real economy. It is a part of a greater international effort to develop and scale-up innovative financial products and services aimed at addressing the multifaceted global problems of poverty, unemployment, human rights, education, healthcare and climate change.

Since the notion of the global citizen is today far more prevalent, investors have become increasingly socially responsible. Saad Choudri, CCO of Miniclip and angel investor of Scoodle, an app-based solution for sourcing tutors for students aimed at enhancing their learning experience, is driven by this. "The impact agenda is being brought to the forefront, 84% of millennial investors are driven by investing in projects with an underlying impact agenda," he said. "Scoodle is run by a bright team and is backed by diverse investors within the tech space and with education as the primary focus with measurable outcomes."

However, a key challenge for investors, from HNWIs to sovereigns and governments, is the capacity to measure the intangible in impact deals. Therefore, impact measurement is needed to achieve more clarity in the growing realm of impact investing. The issuer and investor must be committed to measuring and reporting on the social and environmental performance and the progress of underlying investments, ensuring transparency and accountability.

Related: Innovation For Impact: MENA Startups Are Taking On The Refugee Crisis

This is an ongoing discussion since various new instruments for impact investing are being developed, and it is crucial that all the stakeholders involved, such as investment funds, banks, development finance institutions, foundations, corporations, civil society organizations and governments, understand that impact investing should not only examine the technical design and appropriateness of the instruments used, but that it should also examine the downstream social, economic and environmental results achieved for individuals, households, communities and enterprises.

As illustrated by the Rockefeller Foundation: "Impact investing is a dynamic, generative new field. For more than half a decade, this nascent industry has had real 'boots on the ground,' not only experimenting with, but also scaling up, innovative financial products and services in local settings in both the Global North and the Global South." Furthermore, as stated by Edward T. Jackson and Karim Harji, "impact investing is an industry that values metrics and measurement, utilising both qualitative information, such as cases, and quantitative data. Indeed, at both the industry-wide and institutional levels, its discourse and practice on results measurement are purposeful and sophisticated– and increasingly data driven."

Impact valuation is challenging in the social sector in general, but it is especially difficult in impact investing for a variety of reasons. For example, laborious measurement is costly and therefore contests with financial returns. Many investments also target impact indirectly. And few "gold standard" measurement practices exist.

To avoid these hurdles, many impact investors are currently using a variety of common practices, including the following:

  1. Focus on outputs, meaning the activities produced by the investment, instead of outcomes, and on the actual social or environmental impact created by the investment.
  2. Base confidence on intuition and judgment rather than hard metrics.
  3. Use point in time metrics which consider the impact at one-time period versus over a full investment lifecycle

Rockefeller Foundation (RF) emphases that the impact investing industry will continue to value metrics and measurements as the asset class, which has over the past decade grown to approximately US$250 billion market.

Related: Impact At Scale: Tariq Chauhan, Group CEO, EFS Facilities Services Group

Therefore, where should evaluators start? The article by Jackson and Harji identifies at least three key doorways that investors and evaluators can go through to learn more about impact investing, and about participating in the conduct of evaluations within impact.

1. AN INDUSTRY-WIDE SYSTEM Much of the performance assessment in the impact investing industry has been articulated by a key industry-wide initiative as stated within the report. Namely the Global Impact Investing Rating System (GIIRS), which assessing the social and environmental performance of impact investing funds and of companies seeking impact capital. "The development and enhancement of these systems will need more time but having such tools for both the entrepreneur and investor will keep the impact momentum" as noted by Jackson and Harji.

2. POLICY INFLUENCE Policy plays a fundamental role in the impact investing space, as noted by Jackson and Harji: "In recent years, there has been a rapid increase on developing policies that enable impact investing has picked up serious momentum." Furthermore, "at the centre of this effort was the Impact Investing Policy Collaborative (IIPC), a global network of scholars, practitioners, and policymakers from a dozen countries." Measuring policy influence and effectiveness is a focused area of assessment. As per a recent insight by Karim Harji, the policy influence "work has been advanced by the OECD, and the National Advisory Boards under the Global Steering Group."

3. SECTOR INTERVENTIONS Furthermore the report addresses sector intervenue, as noted by Jackson and Harji, the impact-investing approach of interferences in entire business sectors within a country or region has seen increasing visibility. "Such sectors may comprise of medical technologies, mobile payment systems, solar lighting, and affordable private education. Investee enterprises in such sectors not only generate employment and increase income for local workers, they also can provide products and services that are affordable by the poor and low-income groups. "

The UAE has been nurturing such enterprises. For instance, Health in Hand is focused on democratizing primary healthcare platform for patients, providing ethical and cost containment solutions for payers, alleviating over prescribing, excessive diagnostic testing and unnecessary outpatient visits. Not only does Health in Hand have a national focus but it is also guided by a global aim to address key issues with healthcare. Another key example from the UAE is HydroWind, which aims to be an energy company that will contribute to the global environment, economy and humanity by developing zero carbon emission technologies with an initial focus on providing low cost fresh water.

Entities such as C3 are supporting social entrepreneurs across the UAE and Middle East, "C3 helps entrepreneurs in the MENA region to grow their business, scale their social impact and get connected to a supportive ecosystem," notes Medea Nocentini, co-founder and CEO, C3. Its flagship program, the C3 Social Impact Accelerator, powered in its latest edition by HSBC, provides Series A entrepreneurs with practical tools and know-how to measure their impact and be investor-ready, alongside one-to-one support from experienced experts and mentors to maximize their opportunities and address their challenges.

In the report by Edward T. Jackson and Karim Harji, they state that as the field of impact investing proceeds on its path to greater development and scale, it will require further evaluation at every level: "Evaluators will be important not only to assess the intended and actual outcomes from individual transactions, but also to critically analyse how the field as a whole is contributing to efforts to tackle global social issues."

Impact investing is key in solving our biggest social problems. which requires private capital. The UN estimates a need for $3.9 trillion a year between now and 2030 to meet the Sustainable Development Goals. Philanthropy and government funding have proved not enough to meet this need, while impact investing might be a key for solving it due to its reliance on private capital. In conclusion, there is an urgent need for investors to become familiar with the impact investing narrative.

Related: Investing For Impact In The Middle East

Zahara Malik

Co-founder and CEO of Grosvenor Capital

Zahara Malik is co-founder and CEO of Grosvenor Capital (GroCap), a boutique advisory company headquartered in the UAE which focuses on providing clients with business strategies, capital introduction and advisory services across the GCC, Africa and beyond.

Malik has a track record of working with successful entrepreneurs and prominent figures, including  royal dignitaries, heads of state, ministers, UHNWI, family offices and executives. She has built substantial experience of working in emerging and frontier markets as an investment specialist holding senior positions at Access Power, Global Investment Bank, Invest Africa and Sunbird Group.

Furthermore, Malik has worked on key philanthropy and impact campaigns with HRH The Prince of Wales, The Princes Trust and Mosaic International network. She formally chaired The Princes Trust Junior Associated Program, and is currently a trustee of Jaago Foundation, where she opened her first school in Chittagong, as well as Chief of Amplification for Girls Do Good.

Malik was also a finalist for the “Rising Star” category in 2017 for the prestigious British Muslim Awards. Malik holds a MSc in global governance from UCL, and has become a published researcher after earning a distinction in her master’s dissertation on the global issues surrounding water wars and the impact of shale gas production across the US and China.

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