NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Despite the number of interesting sessions offered at Net Impact this year, I chose to stay focused on a specific topic and attended mainly sessions related to impact. This post is a combination of a few of those sessions.

The first impact session I attended, The Role of Impact Investing in Social and Environmental Change, discussed the significance of investing for impact and new trends in the field. John Goldstein of Imprint Capital Advisors, the moderator, started the session by acknowledging that impact investing applies to a wide range of asset classes and missionaries. Each panelist then shared their interest in current innovations occurring as a result of impact investing. Bill Marvel from Baldwin Brothers, which started as a hedge fund, is interested in new enterprise and investment strategies, while Art Stevens from the Calvert Foundation is focused on ways to use impact investing to create more effective vehicles to enable participation and channel capital, whereas Rob Whittier of Deloitte is involved in building industry infrastructure though standards and metrics. Whittier, who works with IRIS, highlighted that one of the goals of IRIS is to unlock trillions of dollars to invest in such ventures. I was also pleased to hear Rob cite a malaria example to describe the type of metrics IRIS uses that I often use to describe the differences between outputs and outcomes (i.e. an output would be the number of malaria nets distributed, whereas an outcome would be the change in malaria incidence due to the malaria nets). He also clarified that IRIS is focusing on standardizing output metrics first. To which Stevens later added that “outputs are okay … We need outcomes, (to answer the question) are we changing people’s lives. (We) need to ramp up measurement.” He continued by saying we need to collect enough data to know what our impact is, but not be buried in measurement; a line that the impact investing field is carefully assessing now.

The closing question came from a student attendee “Will we be able to fix or save the world?” to which the panelists responded confidentially that yes, they think so since the brightest students are choosing to dedicate their careers to contributing to answer. And Steven’s response to the student’s question was right on, we will know we are aiding in addressing this problem when we see we are turning money back into relationships.

Despite the optimistic response of the panelists to the last question, I left the session frustrated. Why are people saying we need to start with measuring outputs instead of outcomes? And why are we starting with investors – why are we working to unlock large amounts of money to invest in ventures if we don’t know if their business model is helping or hurting those they are seeking to serve? If standards only aim to include output metrics now, information elicited by these kind of assessments will only indicate how well the business model operates based on if they performed as they planned to or not. This assessment does not address the larger question of how and potentially, why the business model is helping or hurting individuals. With limited resources, we should instead focus our energies on figuring out how to make evaluation work better for ventures, so they can assess and enhance their business models in order to better meet the needs of those they seek to serve. Then, we can unlock the additional capital to invest in models that are proven to help alleviate poverty.

Another panel session on impact, Impact Investing Organizations: Achieving Triple Bottom Line Impact examined how the panelists designed their investment vehicles, chose indicators, and managed investments that aim to balance their triple bottom line returns. The session also addressed the broader challenges and trade-offs that impact investing organizations face while seeking to deliver non-financial returns.

The panel, moderated by Gautam Kaul, a professor of finance at Ross School of Business, included panelists: Neel Inamdar from Verde Ventures joining virtually, Ben Powell from Agora Partnerships and Doug Young from MicroVest. The first question polled the panelists how their commitment to measuring triple bottom line affects the way they operate. Inamdar kicked off responses by saying Verde Ventures does not even consider a business opportunity unless it has a conservation wing. Powell followed by saying that Agora Partnerships is trying to create a community of impact entrepreneurs. And Young added to the conversation by sharing the shift in thinking that their organization had to go through when they began to use investments; that is, people ask a lot more questions when they are giving money as an investment instead of as a donation. Powell chimed in saying that they had to become more transparent, in fact, they now examine all deals they did and decided not to do, and put it on the web as a white paper. Powell also highlighted three problems facing impact investing: 1) how do you create a financial structure that doesn’t need $1 million or $100 but somewhere in between 2) how do you develop a pipeline (i.e. where are the businesses originating?) and 3) how do you ensure entrepreneurs value the vision you have? Kaul wrapped up the discussion for the first question, with some food for a thought: “people with a good heart don’t think consistently…” and made the important point that when working to achieve a triple bottom line, organizations need to think about other inputs besides money, such as networks and soft skills.

When asked if environmental impact is easier to measure as compared to social impact, Inamdar replied that the idea of environmental footprints has helped, but these metrics are still deal dependent, and that social metrics aren’t harder to measure in general, but we do need to come to agreement on a set of social metrics. Kaul made the point that making money is easy but creating value for society is difficult and should make you tingle. He also suggested that we are on a longer path, as it took a long time for the stock market standards to be set. Inamdar added that it is not easy to include triple bottom line measures in a term sheet due to the lack of standardization. Which made me think yes, we are making headway in standardizing metrics, but we still have a lot left to do since we are only focusing on outputs and need to have more of a focus on the entrepreneur, instead of investors. Powell seemingly read my mind, and asked the rhetorical question: will entrepreneurs really use IRIS and GIIRS, or other similar models to better manage their businesses? Similar to designing a business model for the base of the pyramid, one has to shift their thinking from what type of product they want to sell to how they can give communities what they want, this shift in thinking still has to happen with impact assessment. How do we get impact assessments to work for entrepreneurs? How do we get entrepreneurs buy in to conduct rigorous evaluations? I think the answer is in the framing; framing impact assessment as an investment to assess and enhance one’s business model.

These sessions on impact left me wondering what others think about how, as a field, we are approaching the subject of metrics. Do you think we are on the right track, or do we need to reframe our positioning to increase our attention to entrepreneurs versus investors? Do you think we are doing enough, or do we need to push ourselves harder to make the leaps to also standardize outcome metrics?