Impact measurement can be a daunting term for social enterprises and impact investors. Achieving positive social and environmental impact alongside financial return is hard enough on its own. Evaluating this impact, measuring its progress toward achieving a pre-determined social or environmental mission, and consistently reporting on these achievements can be even harder. Despite significant progress in the past twenty years, impact measurement is still in its infancy. For perspective, society has spent centuries developing its current financial measurement system, which still experiences significant changes to this day.
Impact measurement is a nascent structure in the realm of social impact and impact investing, constantly being redeveloped to become more robust, user-friendly, inclusive and generally accepted. Simply put, the rulebook is still being written. While no one-size-fits-all approach exists for impact measurement, this does not suggest there is an absence of accessible high-quality tools to measure impact in a meaningful way. Conversely, there is an expansive toolset of impact measurement resources waiting to be leveraged by aspiring impact investors, social purpose organizations, and socially-focused intermediaries. Since impact measurement can get quite messy, this article offers a solution to help clear things up: SOAP.
S — Screening
A simple first step to impact measurement is establishing a Yes/No screening process for organizations. This is a relatively low-effort impact measurement filter that helps ensure an organization of interest is pursuing impact that matters to you. Screening could be based on an organization’s alignment with United Nations Sustainable Development Goals: 17 internationally recognized goals for achieving a better world. (Read our recent write-up about managing impact using the SDGs here.) Alternatively, or inclusively, screening could be based on an organization’s possession of certain social impact certifications. Certified B Corporations are organizations that have achieved a verified exceptional standard of legal accountability, public transparency, and social and environmental performance. Certified FairTrade organizations support better prices, decent working conditions, environmental protection, and fair terms of trade for farmers and workers. Many other sector-specific resources are also available to screen for impact. Overall, screening helps determine the impact that is meaningful to you, as a threshold for further research and due diligence.
O — Organization
The Impact Management Project (IMP) — a forum which gathers global consensus from over 2000 organizations on how to measure impact — has created a helpful tool to sort organizations into categories of impact. This framework serves as a broad evaluative tool to better understand organizations in terms of impact. The model classifies organizations into four categories: those that act to avoid harm (A); those that benefits their stakeholders (B); those that contribute to solutions (C); and those that do (or may) cause harm.
The IMP model also deconstructs the concept of impact into five dimensions:
1) What are the impact outcomes?
2) Who experiences the impact outcomes?
3) How much of the impact outcome occurs?
4) What is the organization’s contribution to the impact outcome?
5) What is the risk if the impact outcome does not occur as expected?
These dimensions assist in better understanding the characteristics of impact within organizations, and also serve as a useful tool to compare the impact between organizations that operate within the same industries. The goal of this model is to begin analyzing impact at a more granular level, considering who benefits from the impact and the risks associated with failure to achieve success. Based on this analysis, you will likely gain a more organized and informed understanding of the impact that matters to you.
A — Assessment
While internal impact evaluation is both useful and important, third-party impact assessments can add a robust layer to impact measurement that helps improve consistency and standardization while reducing internal bias. Third-party assessments allow for honest comparison of impact between organizations that operate within the same industries. These assessments also typically require organizations and funds to report on their impact in order to be evaluated, incentivizing consistent and diligent impact measurement by the organizations and funds themselves. Two prominent third-party assessments for impact achievement are the B Impact Assessment and the GIIRS Ratings System.
The B Impact Assessment evaluates organizations based on up to five impact areas including governance, workers, community, customers and the environment. Based on this evaluation, organizations receive a score that can be compared with others to understand a generalized relative impact. A B Impact Score of 80 or higher classifies an organization as a certified B Corporation. Interestingly, the B Impact Assessment also provides tools to help organizations improve their impact achievement, offering customized improvement reports, best practice guides and improvement case studies.
The Global Impact Investing Ratings System — more commonly referred to as GIIRS — provides a comprehensive accounting of a company, portfolio or fund’s impact based on the same impact areas used by the B Impact Assessment: governance, workers, consumers, communities and the environment. Specifically, the GIIRS Impact Assessment evaluates three main components to a company or fund: 1) the impact of the organization’s business model; 2) the impact of the organization’s operations; and 3) the impact intent of the organization.
The Impact Business Model (IBM) Rating evaluates business models that are “specifically designed to solve social or environmental problems through company products or services, target customers, value chain, ownership, or operations”. GIIRS assigns a rating of a bronze, silver, gold, or platinum medal for companies or funds in each impact area, as well as an overall IBM medal. Alternatively, the Impact Operations Rating assesses the “impact of the business in how it operates” sometimes referred to as ESG practices. GIIRS assigns ratings in each impact area (excluding consumers) from 1 to 5 stars, as well as an overall score of “Rated”, 3, 4, or 5 stars. Finally, the Fund Manager Assessment evaluates the organization’s impact thesis, how impact is integrated into its business processes, and how the organization manages impact, culminating in a percentile-based score.
These assessments provide a measured, independent look into how companies, funds and portfolios measure up to a wide range of critical impact areas through their business model and operations. A breakdown of the GIIRS Ratings System can be seen below.
P — Performance
Impact measurement does not stop at the point of investment. Responsible impact measurement involves consistent evaluation of impact performance over time. This can be conducted by establishing Key Performance Indicators (KPIs): tangible impact targets that indicate achievement of progress toward a larger impact-focused mission or goal. The Global Impact Investing Network (GIIN) has developed a service named GIIN IRIS+, a digital tool that provides an expansive list of standardized indicators for impact measurement. For example, an organization that produces an energy efficient product alternative may use GIIN IRIS+ Metric PD2243: the amount of greenhouse gases (GHG) that would have been emitted by the replaced product during the lifetime of the organization’s product. IRIS+ also integrates with the UN SDGs and IMP’s five impact dimensions to align metrics with recognized impact measurement tools.
While IRIS+ is not an exhaustive list of indicators, it remains a great baseline for initial impact metric development. What is most important is that social purpose organizations, funds and portfolios use impact metrics that most meaningfully measure the impact they are seeking to achieve. That said, standardized performance measurement remains very helpful in ensuring the industry, as a whole, remains on the same page.
Our main takeaway is this: impact measurement is no easy task. Hopefully SOAP helps you clear things up and better understand how to begin tackling the sticky task of measuring impact. We encourage you to continue exploring unfamiliar measurement models so that you may eventually find a toolset that works for you. The resources are definitely out there. It’s up to you to put them to the test.
For more information on impact measurement and SVX services, reach out to us at firstname.lastname@example.org