Impact Decoded: ‘If it feels like an add-on, you’re in the wrong business’

The Charter of Investors for Impact, launched last year and with 300+ signatories to date, offers a set of guiding principles for all those committed to investing for (as opposed to with) impact. But what sets such investors apart from others? We’re asking some of the charter’s signatories to elaborate on the principles and to explain how they put them into practice. Here, Daniel Brewer – CEO and founder of award-winning UK social investment firm Resonance – makes a powerful, no-nonsense case for putting measuring and managing social impact at the heart of everything.

Whether we’re talking to potential investees or investors, all conversations at Resonance start and finish with impact. Once we understand how they want to change the world, we work on how investment can help them achieve that.

When we start working with a social enterprise, it’s critical for us to be able to evidence what its impact is. So, our investment process always includes an “Impact on Track” session: a half-day workshop with the enterprise that helps us understand what social impact it achieves, and what measures need to be in place to provide evidence of that impact to themselves and others.

Take Bluescreen IT in Plymouth, south-west England, for example. The team initially didn’t see themselves as a social enterprise, but were actually supporting some of the most vulnerable people in the community into education and apprenticeships in cyber security. Following their Impact on Track session, they now include these measures in their internal reporting so they can make strategic decisions that will lead to helping even more people.

We see this as a core part of our role as investors for impact. In fact, we require all investees, within 12 months of us investing, to have developed a social impact framework with five dimensions: (i) a theory of change; (ii) a number of measures and indicators; (iii) a system to capture that information; (iv) the ability to analyse and interpret the information; and (v) a means of communicating it.

That’s not always easy and many social entrepreneurs start with great enthusiasm and then get frustrated when it doesn’t quite work out. But even starting with one metric, as long as it is relevant, helps. Then in year two, you can add to this. We are flexible on how social enterprises achieve it – but it is a deal-breaker for us: if you don’t measure what you value, you will end up valuing what you do measure.

We continue this impact focus throughout everything we do. Each of our investment funds has a stated impact mission, and for each we produce an annual social impact report. These reports not only allow us to tell the story of what an individual investee has achieved throughout the year; they also allow us to analyse the cumulative impact the fund has made in tackling major societal issues.

For example, our regional funds aim to help dismantle poverty in a specific region. By amalgamating the data from each social enterprise, we can analyse how the whole fund is making a difference. By looking at this macro level, we can analyse how the combined effect of all the enterprises is contributing to key factors that drive poverty, such as reducing homelessness or improving the opportunities for young people in disadvantaged areas of a region.

Four lessons we’ve learned

Some lessons we’ve learned from our experience of 18 years of social investment:

1. Where credit is due: As an investor, the social impact we have lies in how we support and strengthen the social enterprise. The impact on the people or environment itself belongs to the social enterprise. We can be proud to be associated with this end result, but it’s rare for the capital to supply more than a marginal contribution to it.

2. Measuring impact is only the first step: Social enterprises and investors alike need to make operational decisions based on the information gathered, and make the move to impact management. We all need to get better at this.

3. Output vs impact: Whenever you start to measure something, it can quickly become a goal in itself. Be careful to understand the difference between an operational target and a measure of impact. As the economist Charles Goodhart put it back in 1975: when a measure becomes a target, it ceases to be a good measure.

4. Challenge your views: Embedding impact management into day-to-day operations is essential, but going above and beyond by inviting external verification and challenge is important, too. This is a service that our own Impact & Innovation team offers, but to make sure we practice what we preach, we work with The Transformational Index to challenge and shape our own impact reporting.

This is a nascent market and we all need to keep learning and improving. One of the best projects to build consensus in this area in recent years has been the Impact Management Project, which has brought together 2,000 global organisations to design widely-agreed frameworks. It’s a great place to start and an even better resource to sharpen your impact measurement and management approach.

My advice to anyone who still thinks impact measurement is a tiresome add-on is this: when done well, it’s a clear win for businesses too. We’ve seen it become the single best marketing tool, the most useful way to motivate staff and the quickest way to weed out distractions. If it feels like an add-on then you are either doing it badly, or you are in the wrong business.

This piece is part of our Impact Decoded series in partnership with Pioneers Post, in which contributors explore some of the core principles that can help funders ensure they're backing high-impact solutions in the smartest possible way. 

Article originally published on Pioneers Post (link)