In our fourth webinar, we heard from Rachel Bass and Ariela Cohen from the Global Impact Investing Network (GIIN) and Uma Sekar, the head of impact assessment at Capria. Rachel and Ariela first discussed the GIIN’s recent study, The Business Value of Impact Measurement.
97% of impact investors who responded to the GIIN’s survey believe impact measurement data has business value. So how do they use these metrics to inform business decisions? The GIIN hypothesized that impact measurement can be valuable for both the investor as well as the investee at each stage of the investment process. This led to a qualitative study on the business value of impact measurement, which aimed to answer two fundamental questions:
- How does impact measurement generate business value?
- What types of data do investors and their portfolio companies find useful?
There are many measurement standards too, but IRIS is a standardized metric used to consolidate these approaches and apply it to your context in four steps: Plan, Do, Assess and Review.
The GIIN defined business value to mean financial or strategic gains, including:
- Revenue growth
- Operational effectiveness and efficiency
- Investment decision
- Marketing and reputation building
- Strategic alignment and risk mitigation
For example, Root Capital found what the GIIN referred to as “hidden” growth potential in their performance data. An agricultural cooperative union they evaluated had recently started operations and therefore had weak financial statements, but its 10 member cooperatives were Fair Trade Certified and had received training in organic farming practices, two factors which would ensure premiums on the sale of their products. Knowing this was beneficial for both the investor and investee. You can read about more examples like this one in the GIIN report.
Theory of Impact
Uma Sekar then spoke specifically about Capria’s approach to measuring impact, laying out the steps as well as the thought process behind them. Begin with a theory of impact. This depends on the context of your fund, taking into account factors that shape the market it operates in, such as geography and timing.
- Define: envision your future portfolio in terms of sector, geography and/or other factors and then choose the questions that will quantify impact. For example, how many low-income individuals will you reach?
- Measure: create a framework, establish a process with the portfolio and for data collection and analysis.
- Assess: categorize by stage of screening, determine sector specific questions.
- Use: for internal decision making (internal) and reporting (external) to support activities like fundraising as well as branding.
Both the GIIN’s and Capria’s approaches to measuring impact have the same goal: make sure impact metrics are qualitatively and quantitatively set out in order to have the most value to investors and portfolio companies. This value can include operational, financial, and strategic changes, and the process should ultimately be adaptable in different geographies, sectors and stages.
- Be intentional and measure impact throughout the investment process
- Take qualitative data into account as well as quantitative
- Outline logic model
- Business/operational metrics can also be impact metrics
Keep an eye on our Capria Catalyst page for our next webinar, which will take place in September.