“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where–” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
– Alice in Wonderland by Lewis Carroll
In order to know where we want to go, we need the destination in mind and ways to test whether we are making progress in the right direction. Also required is a guide to show that we are on the right path. To encourage more people to come on the journey, the path needs to be mapped and the signposts have to be clear. The more people there are on the journey, the more robust this infrastructure needs to be.
The destination we seek is a prosperous future where no-one gets left behind. Progress will require that we do some things differently to tackle more issues at their cause rather than treat the symptoms. More money and talent will also need to be mobilised to contribute to the solutions in sustainable ways.
Financial markets are large and growing; more than US$7 trillion changes hands every day. If even a small proportion of this capital can be put to work responsibly to finance solutions that work to address challenges we face as a society, it can make a big difference. The G8 Social Impact Investment Taskforce found in 2014 that it was realistic to expect that US$1 trillion could be mobilised to drive positive impact for society.
The first Australian survey of investor attitudes and intentions reinforced that investors are increasingly recognising that their investment decisions have an impact on society; and that there is at least A$18 billion of willing capital available to invest for impact in Australia, if appropriate opportunities are available.
The Australian Advisory Board’s strategy to catalyse impact investment: Delivering on Impact, identified data and benchmarking as critical to mark the pathway and signpost progress towards a dynamic market for impact investment.
Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2016, launched at October’s Impact Investment Summit Asia Pacific, makes an important contribution to this. The report reflects three key aims of this initiative:
- To provide market based data on impact investment activity and performance, that can provide a baseline for understanding market activity and the range of opportunities emerging in the Australian market;
- To better understand current measurement and management practice and encourage transparency about financial and impact performance of impact investments;
- To contribute to shaping the global development of impact benchmarking and inform practical aspects of impact measurement.
The longer-term objectives include seeding a data set that can inform assessments of growth and performance of the impact investment market, establish track record and make it easier for a broader range of investors to participate in the market.
How did we go about benchmarking?
The process of collecting this first data set of Australian impact investments required asking tough questions like ‘Where do we draw the boundaries?’; ‘What level of intentionality and measurement is required for something to qualify as an impact investment?; and ‘How do we think about impact investment product relative to the growing portfolios of some investors targeting impact?’ Stress testing the boundaries with practitioners from the local and international market and the working group of leaders, all of whom generously gave their time to this process, gave rise to robust dialogue and brought forward different perspectives from the field that enriched and refined the sampling process. The feedback gained from putting the data collection into practice will help evolve and shape the data set for future.
We now have a starting point from which to track the development of impact investing. The data highlights the significance of green bonds emerging in the Australian financial landscape in the year to 30 June 2015. However, the available data beyond the June 2015 cut off suggests we can expect to see further growth from a more diverse set of impact investment products in 2016.
How are Australian impact investments performing?
The financial data is important and at this early stage it is encouraging that the impact investments are performing within range of expectations for the respective asset class.
Our real interest is what the data tells us about the opportunities to improve outcomes: for people’s lives and the planet. Despite the relatively small sample, the data reveals a rich tapestry of diverse investment activity touching the lives of tens of thousands of people. This opens a window on what could be possible if we work collectively to grow impact investment.
The dimensions and contours of who benefits and how, need to be drawn out and better understood. How are people’s lives being touched? Are people better off as a result? What is working? Where is the added value? Done well, this can enable clearer patterns to be identified and more useful actions to be developed that will benefit people and communities. The picture of financial performance and track record will evolve over time and be critical for building the confidence of people and communities, governments, service providers as well as investors.
What did we learn about how impact is being measured and what’s needed?
Our benchmarking initiative has given significant weight to the measurement of impact. This reflects the emphasis on ‘impact’ as core to what constitutes impact investment. It also reflects the call from the market for guidance on how to measure impact and understand what others are doing.
People have told us they are looking for guidance on some very practical questions: What questions should be asked? Whose job is it to collect and collate data? What is useful to understand impact and to manage risk, including the risk that the intended benefit is not being achieved or that there are unintended consequences?
The better we get at measuring impact and indicators of progress, the more confidence investors will have in what to expect, and the more confidence service providers and beneficiaries will have about the value of mobilising private capital in areas of need, and understanding the potential in communities. More consistency in what we measure and how we measure it will allow more comparisons of apples and apples. For example, if investments target employment outcomes, does the data enable comparison of the number of jobs created, as well as the quality and duration of those jobs?
Everyone has a role to play
There is a role to play for all who have a stake in commissioning, creating, financing or measuring social impact. Community organisations and other impact driven enterprises have a role in setting out indicators of the social value they create. Asset managers can set an example and contribute to positive industry standards by measuring and reporting on impact. Asset owners and investors can participate by asking for impact data alongside financial performance. The academy and evaluation practitioners can contribute by segmenting the aspects of measurement practice and evaluation that is fit for purpose in different contexts and for different audiences: when do we need to understand whether something works to deliver the stated objectives and when do we need to know whether it meets a research gold standard and performs better than other approaches?
Work is underway to develop impact measurement and management. The UN Sustainable Development Goals provide a set of universal objectives and targets providing focus on measurement in common areas across the globe, including from within the corporate and finance sectors. Global leaders including the Global Impact Investing Network (GINN), Big Society Capital and Bridges Impact+ are already paving the way with taxonomies, frameworks and data. Other groups including the likes of Social Impact Measurement Network here in Australia, are focussed on how to streamline and develop measurement practice. The OECD is putting significant emphasis on data in the next phase of its work to build the evidence base for impact investment.
Meaningful metrics and data are central to making the case for investment in impact and understanding the value that impact driven organisations are creating, and impact investments are enabling. No doubt there is work to do and we can expect to see the field develop quickly from here. Evolving data and practice will take time, just as accounting standards and modern investment theory took time to develop. In the meantime, we cannot let the perfect be the enemy of the good. We can use these early benchmarks to inform more action and refinements and continue to work toward measures that are good enough to proceed with confidence toward scale.