Completing the impact investing transaction
By Emily
As metrics are becoming steadily more important with the growth of the impact investing sector, I wonder if the frameworks that currently exist are enough.
I was quick to categorize the social impact our client is creating as primarily environmental. As a solar panel installation company, it seemed intuitive to assume that providing clean energy was their most significant contribution. Yet per usual for most assumptions, this was incorrect. Our discussions with the client uncovered their true value is to the members of the favela they operate in. In providing solar panels, the client provides three critical resources to help improve these communities: the panels themselves which will save money on electric bills, jobs for community members to install the panels, and education opportunities for both adults and children.
Unlike environmental impact, it is much more challenging to measure this type of community impact. Across all the impact measurement frameworks we looked at for this project, I could not find a metric that fully encompassed what the client was doing for the community. As metrics are becoming steadily more important with the growth of the impact investing sector, I wonder if the frameworks that currently exist are enough. Further, even if the client determines a way to translate the community impact into a metric, which they have attempted to do, it becomes a number unique to the organization and likely not comparable across other businesses. While I think it is fabulous that traditional investors are starting to select investments that take on a social responsibility, I think the lack of standardized metrics that really encompass the social value of the organization presents a large hurdle.
In a similar vein, many of the standardized metrics that do exist are most impressive when their inputs include data over a longer period of time. For organizations such as our client, who is just starting to collect measurements, their metrics will look mediocre when up against organizations who have been doing this for years. I’m curious if impact investors will take this into consideration when making their investment decisions. Without a variable for the organization’s lifespan I feel these newer businesses will be overlooked. Therefore, they will not obtain the funding they need to create their proof of concept, regardless of the social impact it could create.
I want to believe that impact investing has the legs to carry social enterprises in achieving their mission. However, the work we completed for our client deliverable leads me to conclude that it may be a long time before we see this happen. Neither the organizations looking for funding nor the portfolio managers looking to invest really know what they need in order to complete this transaction. Until this changes, organizations, such as our client, will need to rely on government and private grants to support their operations. It will be interesting to see how these organizations straddle the line between traditional funding and the emerging impact investor audience.