Focusing on impact

Joe Ludlow and Jo Casebourne - 16.11.2012

The impact investment market is increasing its focus on defining, evidencing and measuring the impact of organisations receiving finance and of the organisations providing it.

This hasn't always been the case. When the field was primarily focussed on providing access to finance for charities, it was often assumed that assuring registered charity status was a sufficient indicator of impact, and success measures for investments were primarily financial.

Much progress has been made. Initiatives such as Inspiring Impact and the UK Social Investor Group are convening stakeholders in the field to develop common approaches and agreed frameworks for impact measurement and reporting. It is increasingly commonplace for impact investors to consider investment in companies limited by shares as legitimate ways of maximising impact and this is further focusing investors on measurement of impact performance.

Despite this commendable progress, there often continues to be an assumption among impact investors that if the impact of an organisation (or its products or services) is judged to be sufficiently positive at the point of investment, then the primary objective of an investment should be an increase in scale.

Yet there are very few social interventions with high quality evaluations justifying this assumption of sustained impact with increased scale. And this assumption is least valid when working with early stage innovations whose product / service, process of production and means of delivery are often moveable feasts and subject to constant iteration.

Initiatives in Government[1] and in the public policy and social research community such as the Alliance for Useful Evidence [2] are bringing a greater focus on the standard of evidence for impact used by purchasers of products and services. Meanwhile impact investors are increasingly grappling with the complexities of investing for outcomes, most obviously when financing organisations which are paid on achievement of outcomes, such as through social impact bond mechanisms - so investors need to get to grips with using evidence pre and post investment too.

Nesta is developing and testing a set of standards of evidence to support investment decision making[3] when evidence is not strong. We see improving the standard of evidence of impact as an impact investment objective in itself, much as seeing a consumer product achieve a kitemark, or seeing a pharmaceutical deliver a successful clinical trial is a legitimate use of investment in other sectors.

The goal isn't evidence in itself. It is to see capital deployed to grow the impact of the products and services most likely to have a positive effect for people and communities.

See the full impact investment blog series:

[1] For example HMG's Open Public Services White Paper (June 2010) states "To support better commissioning and innovation in public services, open public services require robust accreditation of what works. Both commissioners and providers need to know which programmes are proven to work. We will consult on how to establish credible accreditation bodies for public services which can mirror the work on the National Institute for Health and Clinical Excellence in the health services."

[2] http://www.nesta.org.uk/areas_of_work/public_services_lab/alliance_for_useful_evidence

[3] Puttick, R and Ludlow, J (2012). Standards of evidence for impact investing. Nesta.