The current state of impact measurement practice
Normal practice and good practice in measuring social performance of business are evolving amongst those that invest in the sector.
ANDE has just published a new report on The State of Measurement Practice in the Small and Growing Business...
It's a useful review of approaches used both by impact investors and by capacity builders, such as accelerators and incubators. Amongst impact investors, around two thirds of those surveyed assess social performance at due diligence stage, and almost as many track outputs over time.
Few so far measure outcomes, but the report outline the three approaches that are being used: stakeholder surveys, qualitative case studies, and experimental or quasi-experimental studies. These are early days but each is likely grow.
Interestingly not yet half have portfolio-wide metrics or a scorecard for tracking progress. The session where I presented approaches I have used to portfolio tracking suggested this is certainly something many are wrestling with now, but facing the common problem that standard metrics are not obvious when businesses are rapidly evolving and early stage.
The two-day Ande Metrics Conference, where this report was launched, was a great chance to learn a few more things about the current state of measurement practice. Based on this intensive dip, and having scrutinised a dozen impact investors' websites for what they report on social impact, I have a few conclusions of my own on the current state of social reporting in the impact investment and inclusive business space:
- Everyone is using different assumptions, but hardly anyone even documents those assumptions, let alone shares or standardises them.
For example, do you multiply the number of suppliers or clients by household size when counting the total number of beneficiaries? This is one of the top three significant factors affecting scale of impact and yet usually it is impossible to tell if numbers have been multiplied. I assumed most investors do use the multiple, but when I asked for a show of hands, was surprised to see that some do not. Do investors report 100% of the results for those they invest in, rather than a share based on their investment? Most do, but I have found exemptions to this rule too.
The need to document and share assumptions is recognised, and was the topic of an excellent thematic session led by The GIIN (IRIS team) and Root Capital. Perhaps over time we will at least have a system for sharing assumptions, as a step towards more standard practice.
- A good share of social investors and inclusive businesses are targeting people 'at the bottom of the pyramid' or in 'lower income segments' but understanding of what this means vary enormously. There is no standard definition. IFC's definition of the BoP is the widest, encompassing those living under $8.50 (approx) per person per day, while some businesses are reporting their reach to those living under $1 or $2 per day.
- There is a muddle over poverty lines. The reason investors and entrepreneurs focus on those living under $2 a day is that this is an internationally accepted poverty line. but actually it's not. The World Bank poverty lines of $1.25, $2, and $2.50 are set in Purchasing Power Parity. Their equivalent in current market dollars in most countries in Africa and Asia is a lot higher. It's not surprising that business people are not familiar with jargon and methodology of the highly professional development economists of the World Bank. It is surprising that the vast resources invested in developing data around Purchasing Power Parity and poverty data does not extend to simple user guides for those unfamiliar with this world. In practice it means that even where we use the same numbers, we are measuring different things.
- Hardly anyone is reporting both social metrics and financial metrics together. One appears in one place, the other in another. And yet the whole point is to find business models that deliver both together. The conclusion to the ANDE metrics report focuses on this theme too. Mike McCreless, CJ Fonzi, Genevieve Edens, and Saurabh Lall make the case for Metrics 3.0 which will integrate financial and social reporting, for true performance measurement to inform performance management.