With the world facing different challenges, including the finite amounts of water, natural resources and land which all are already heavily tarnished by humans, as well as a less predictable climate, one of the major concerns is how to provide for nine billion people by 2050? Impact investing, which involves the placement and unlocking of capital to achieve social or environmental impact with an expected financial return, might be one of the solutions. Impact investing connects financial markets with the real economy. It is a part of a greater international effort to develop and scale-up innovative financial products and services aimed at addressing the multifaceted global problems of poverty, unemployment, human rights, education, healthcare and climate change.
Since the notion of the global citizen is today far more prevalent, investors have become increasingly socially responsible. Saad Choudri, CCO of Miniclip and angel investor of Scoodle, an app-based solution for sourcing tutors for students aimed at enhancing their learning experience, is driven by this. “The impact agenda is being brought to the forefront, 84% of millennial investors are driven by investing in projects with an underlying impact agenda,” he said. “Scoodle is run by a bright team and is backed by diverse investors within the tech space and with education as the primary focus with measurable outcomes.”
However, a key challenge for investors, from HNWIs to sovereigns and governments, is the capacity to measure the intangible in impact deals. Therefore, impact measurement is needed to achieve more clarity in the growing realm of impact investing. The issuer and investor must be committed to measuring and reporting on the social and environmental performance and the progress of underlying investments, ensuring transparency and accountability.
This is an ongoing discussion since various new instruments for impact investing are being developed, and it is crucial that all the stakeholders involved, such as investment funds, banks, development finance institutions, foundations, corporations, civil society organizations and governments, understand that impact investing should not only examine the technical design and appropriateness of the instruments used, but that it should also examine the downstream social, economic and environmental results achieved for individuals, households, communities and enterprises.
According to the Rockefeller Foundation “impact investing is a dynamic, generative new field. For more than half a decade, this nascent industry has had real boots on the ground, not only experimenting with, but also scaling up, innovative financial products and services in local settings in both the Global North and the Global South.” I would add that it is an industry that values metrics and measurement, utilizing both qualitative information, such as cases, and quantitative data. Indeed, at both the industry-wide and institutional levels, its discourse and practice on results measurement are purposeful and sophisticated – and increasingly data driven.
Impact valuation is challenging in the social sector in general, but it is especially difficult in impact investing for a variety of reasons. For example, laborious measurement is costly and therefore contests with financial returns. Many investments also target impact indirectly. And few “gold standard” measurement practices exist.