Today we are launching a report that takes a major step forward to increasing the transparency of our impact investment fund. It is a report about openness, about learning, about ensuring that we have as much positive impact on the word as we can, it is… an Impact Strategy Audit.
If you’re anything like me the mention of the word ‘audit’ on a hot July day will not get your pulse racing. But I promise you this is not a report full of accounts and numbers to make your eyes swim. The summary shows clearly where we are meeting our strategic goals, and where and how we could improve. We have found the process of opening ourselves up to independent scrutiny an extremely valuable one but is it right for you? Below I answer a few common questions to help you decide whether an impact audit would be right for you.
So what is an impact strategy audit? Last year we published our new impact strategy that sets out our ambitions for social impact and how we propose to achieve and measure that impact. The audit explored in detail where we are delivering on this strategy, where and how we could do better, and how our approach compared to others in the impact investing industry.
Why commission an impact audit? Our main motivations in commissioning this audit were to increase our transparency and to be open about the strengths and weaknesses of our approach. We see this as being particularly valuable in the impact investment sector where many impact approaches are not shared or discussed. By opening opening ourselves up to independent scrutiny we hoped to learn about where we could improve. We also wanted to provide assurance to our investors and stakeholders that we really do what we say we do and that they can trust what we say.
Quite simply, if you think that social impact is as important as financial returns and every year you undertake a financial audit you should consider applying a similar level of scrutiny to your impact work.
What is involved? We opened up our impact processes, documents, tools to an independent third party, ITAD. ITAD had full and unfettered access to all investment, reporting and board documents under a non-disclosure agreement. In addition to desk research ITAD also interviewed the team, our Investment Committee and three of our portfolio companies. These companies were ultimately chosen by ITAD and our input into the decision was helping them to understand our past relationship with those companies.
Why didn’t we do an evaluation? What’s the difference? The big difference as we see it between an impact audit and evaluation is that an audit does not try to assess the impact of fund, instead it focuses on whether we are well set up to deliver impact and the integrity of our processes. There are two big reasons why an audit was the right choice for us:
Who might it be useful for? We believe this approach could be useful for any impact investment fund or grantmaker. We believe the value of the audit is increased if you are accountable to external stakeholders, such as investors. We also believe this is an approach that would be useful to front line organisations delivering impact. An audited impact approach may help to strengthen the case that organisations need only produce one report for all of its funders rather than providing bespoke reports for each.
What were the challenges? Inviting scrutiny on what were previously purely internal processes is always going to come with challenge. Now that the world can see our weaknesses as well our strengths this gives more urgency to our need to improve. In particular developing an exit strategy for impact, considering the unintended impacts of our investments and making the application and updating of our tools more systematic.
It is also worth noting a big practical challenge: our knowledge management system was not set up in such a way that made clear sense to an external observer. This made sharing documents much more challenging than it might have been.
How do you go about commissioning an impact audit? Each organisation has its own procurement processes but we recommend working the following steps into any commissioning process:
In short the process of having our impact strategy audited was low cost, low burden and enlightening. At Nesta across all areas of our work we are trying to increase transparency in our approach to understanding impact. We need to demystify these processes, open up and be willing to talk critically if we want to move forward, both in the impact investment and foundation worlds.
If you are interested in talking more about whether this approach might be right for you or want to hear more about our experience please don’t hesitate to get in touch!