In 2016, NII revised its impact strategy. Enshrined in the new strategy is a commitment to transparency as a way both to demonstrate our performance and to contribute to the publicly available data on impact investment. As part of this commitment to transparency, in 2017 we commissioned an ‘impact audit’ of NII. We believe it is the first impact audit of an impact investment fund to be made publicly available in the UK.

The report highlights areas of strength in NII’s practice, such as its partnership-oriented approach, and areas for development, such as incorporating impact on systems as well as individuals into its framework.

• The auditors found that, in practice, Nesta Impact Investments (NII) has implemented the Impact Strategy well and meets standards for good practice impact management such as those highlighted by the Impact Management Project.
• Of particular strength is NII’s partnership-oriented and iterative approach, which prioritised flexibility and practicality. NII shows a recognition that impact is difficult and most businesses – particularly those at early stage - fail to deliver impact. They also recognise that the process of identifying impactful businesses and managing towards impact needs constant attention and alignment with business strategy at all stages of the investment cycle.
• NII invests significant effort and resources into developing sector strategies to develop an iterative understanding of ‘what good looks like’. The due diligence process, and new impact risk-return tools are overall fit-for-purpose practices that support this selection process. The NII team use the tool to appraise impact investments resulting in a balanced discussion, rather than relying solely on the algorithm of the tool. In managing the investments’ impact, NII focuses on the quality of the businesses’ implementation, and not solely on outcomes.
• In selecting high impact investments, with business-to-business (B2B) investee businesses, the focus on the end beneficiary is more difficult, of which NII is aware. The new risk-return tool, though comprehensive, does not fully consider impact risk to beneficiaries or externalities and perhaps uses language that not all stakeholders understand.
• Data collection has lagged as compared to impact plans, particularly for investments made prior to the new Impact Strategy, and mostly for investee operational reasons, as some struggling investees deprioritise impact reporting. NII has continued to support companies that have not reported, under the expectation that reporting will improve as operations recover. External reporting has often emphasised scale of impact rather than depth of impact, due to missing data, missing the nuance and complexity of impact.

Download our management response to the Impact Audit.