In this last blog of the series coming out of our Impact in Impact Investment Roundtable, we explore what is shaping demand for data in impact investment.
What information do you use when choosing a hotel for your holiday? How do you filter through the endless options for insurance? It is almost certainly the case that some sort of data played an important role in the decision, alongside personal recommendations and prior experience.
We use data every day to make decisions, but in our search for information, we don't always know which data is most important to consider. In more established areas, like travel and insurance, we can rely on services like comparison websites to help us identify and prioritise the most important information. We depend on each other and on industry experts to help us navigate the complexity and filter out the noise.
The impact investment industry is at a point where we too can shape what data asset owners use to make decisions. As the sector expands and moves towards the mainstream, attracting more and more ordinary consumers, we will need to define the data we want to be judged by. If we don’t, others who understand less about the reality of our work will do it for us. Already, we see examples of this. Many of those present at our impact roundtable reported requests for data from investors that are requiring oversimplified, single impact measures, or measures that are of no relevance to front-line social purpose organisations trying to help people on the ground.
Without coordinated, proactive shaping of demand from the industry, we risk opening the doors to unproductive or negative behaviours. As we've discussed in the earlier blogs in this series, impact measurement is complex. Time-poor asset owners may not be able to assess the rigour of reported social impact, and they may not realise how difficult and complex social change can be. There may be a temptation or incentive to:
This is why the work of the Impact Management Project is so important. The norms being established through this process should be the foundation for shaping the data that people use to make their impact investment decisions. If we want this to be an industry based on meaningful, useful data, it is necessary for industry insiders to work together on how we advise the market. Asset owners should be able to look to us for guidance. We owe it to them to coordinate on how we report on the areas of impact that we consider to be most important. For example, if we decide that it is more important for an asset owner to assess a fund based on the culture of that fund rather than their underlying impact data, we need to coordinate our reporting to move asset owners in that direction.
We have mentioned impact audits in previous blogs as a way to improve the credibility of impact investors, but could they also be a tool to shape demand for data? A comparable example would be the use of financial audits to assess the health of a company. Company outsiders can use the audits to feel confident that the company is meeting agreed-upon minimum standards, without needing a detailed understanding of financial analysis (as explained in more detail here by Jeremy Nicholls). Impact audits might offer our industry similar confidence. This is surely part of the answer, but today’s consumer is used to being able to decide between options using comparable data - we should aspire to that level of transparency as well.
Of course, asset owners are just one consumer of data in the impact investment value chain: businesses are using data to understand their operations, investors are using data to manage for impact. However, the top of the value chain will always have the most power, so what they ask for will inevitably change reporting for everyone. Let's work together as an industry to ensure that any changes are for the better.