Impact investing is becoming mainstream, inspiring classes at top business schools like Wharton and Harvard this fall. Social impact investments connect private sector investors with solutions for social challenges. Often positioned as an opportunity for foundations and the independently wealthy, large traditional financial institutions like Goldman Sachs are also investing in solutions for societal problems while earning a positive return.
As interest in impact investing grows, for-profit and nonprofit organizations looking to shape and benefit from the impact economy should be prepared to engage their investors with measurable results.
Some investment funds and financial institutions are developing their own programs to measure the impact potential of an investment; however, since not all impact investments funds can provide those services, potential investments need to be able to demonstrate positive social return in community-specific, quantifiable ways.
As Margot Kane, vice president of strategies at the Calvert Foundation, points out in her interview with Knowledge@Wharton nonprofits and corporate social responsibility (CSR) programs should still expect research funding to come from grant capital, but they can begin to prepare programs to be suitable for future impact investments. Social impact investments have the potential to help scale high-impact social solutions.
But which organizations will land these investments? There is a risk that organizations and causes receiving social impact investments may be skewed by the priorities of fund advisers or impact investors themselves.
A wealthmanagement.com survey asked 780 advisers, across all business channels, "When you think of socially responsible investing (SRI), which screening criteria come to mind?"
•94 percent indicated environmental impact.
•68 percent indicated labor conditions/employee workplace policies.
•50 percent indicated transparent corporate governance.
•39 percent indicated workplace diversity.
•33 percent indicated diversity of corporate leadership.
Clearly, the capital providers or social impact investors have the power to drive solutions. The challenge, as we shape the social impact investment space, is to hear those in need. Impact investor toolkits should include comprehensive and consistent community needs assessment and asset mapping to engage and respond to voices of the community at large and beneficiaries in particular. These elements, coupled with an informed investor base, can focus sustained social impact investment and create an effective impact economy.
Effectively measuring social impact is in the design phase, an infant science emerging from art. At best, it feels we are crawling toward measuring impact in a meaningfully fungible way, but we must crawl before we walk and walk before we run.
At Goodwill®, we are piloting new measures to help us understand how our work affects the individuals, families and communities we serve. Through extensive collaboration with our network of independent community-based Goodwill organizations, we have developed a framework with four impact domains, including work and skills progression; health and well-being; financial wellness; and work and life supports. Within each domain are measures to evaluate factors like quality, validity and accuracy as well as the cost and feasibility of data collection. We are taking this action to ensure our services yield the intended positive impact and to equip the people we serve and our investors, donors and communities to make informed choices about engaging with Goodwill.
As informative as social impact data is, Jean Case, CEO of the Case Foundation makes an important point.
"Data can be a powerful tool," she said, "but where you don't have it, be transparent about it and make the case that all entrepreneurship really is about risk taking."
As the impact economy matures, we continue to evolve the impact investment model and learn from pioneers like the Gates Foundation. We seek to better understand the tensions and expectations of investors, service providers, communities and individual beneficiaries of investments in solutions.
The impact investing journey is just beginning; engaged communication enlightened by data will guide and inform us.