NexThought Monday: Mindful Metrics – A Conversation With GBF’s Metrics Officer
Editor’s Note: This is a guest post from the Grassroots Business Fund and is part of a short series on approaches to metrics, leading up to the upcoming Metrics Conference from the Ground Up Conference later this month hosted by the Aspen Network of Development Entrepreneurs. Allison Basile joined the Grassroots Business Fund (GBF) in 2009 and serves as its metrics officer, a role in which she oversees the organization’s metrics and environmental and social management.
Michael Stulman: What information does GBF collect to determine whether a company is having an impact at the base of the pyramid?
Allison Basile: GBF collects several types of metrics. Examples include:
IRIS Indicators, including the number of smallholder farmers and payments to smallholder farmers our portfolio companies source from;
Social return on investment (SROI) assumptions, including what percentage of payments to smallholder farmers are income (payments minus farmers’ expenses);
Policies and practices of a business, including those related to child labor, operational health and safety, and resource management.
We collect this information for several different purposes. GBF’s Investment Guidelines outline that we seek to invest in companies that generate direct and significant incremental income or savings to their suppliers or customers at the base of the economic pyramid. Our guidelines also note that we prefer to work with companies that directly impact between 500 and 2,000 individuals with the potential to increase and scale at least 5-10 times over the investment period. Lastly, the guidelines outline that we seek to invest in companies that are environmentally and socially responsible, and are interested in working with GBF to improve in these areas where necessary. Collecting basic IRIS indicators, calculating the SROI, and conducting and environmental and social due diligence helps us to determine whether the company meets our impact criteria.
We also track these social metrics in order to track against a business’s social goals over time. For example, an asset leasing company may have the goals of expanding its client base from 1,000 to 5,000 people in 5 years, and of helping its clients progress out of poverty. Regularly reported data is needed to determine the company’s success in reaching its social goals.
MS: How does GBF define impact?
AB: Our definition of impact involves answering the questions: do jobs provided by small and growing businesses lead to increased incomes and improved quality of life for families and households, compared to other available employment opportunities? Without significant funds for research, GBF, like other impact investors, isn’t in a position to answer that question on our own. For this reason we’re excited that the Aspen Network of Development Entrepreneurs (ANDE), an industry association for impact investors, has launched a Research Initiative aimed at answering that exact question.
MS: What is important to GBF when deciding which social metrics it requires from portfolio companies?
AB: GBF receives quarterly reports from its portfolio companies that include financial statements and basic operational and social reports. GBF only requires metrics that are operationally relevant to its portfolio companies. For example, the number of artisans a company works with and their quarterly payments to them are important metrics to GBF from a social perspective, but for a company, these are basic, operational metrics required to effectively manage their supply chain. For a business that is looking to utilize strong social impact metrics in its marketing, progress out of poverty data serves the dual purpose of bolstering the company’s messaging and improving GBF’s ability to answer the question: What is happening to the BoP stakeholder as a result of his or her engagement with the portfolio company?
MS: What types of tools and support does GBF provide its portfolio companies in order to collect this data?
AB: In addition to investment capital, GBF provides technical assistance to its portfolio companies. One focus area of GBF’s technical assistance work is to enable portfolio companies to create, maintain, and manage through the use of management dashboards. Dashboards are regularly-updated spreadsheets that collect and organize information, and they represent a wide spectrum of sophistication: from simple, manually-updated spreadsheets with annual revenue and cost data, to more advanced SAP, Salesforce or CRM/accounting systems.
MS: Could you describe a challenge facing impact measurement?
AB: Currently, the vast majority of social metrics are self-reported by the companies, leaving their accuracy and reliability in question. In order to increase our level of confidence in this information, GBF is rolling out social impact verifications in our portfolio. To date four have been conducted, and each highlighted opportunities to improve our understanding of our portfolio companies’ impact and enabled us to provide tailored technical assistance that will improve accuracy and reliability in the future. We’re currently looking to develop local partners with the ability to reliably and affordably carry these out.
MS: What do you feel is missing from metrics conversations in the impact investing space?
AB: While the conversation about impact tends to revolve around “social metrics,” I believe there are many important characteristics of high-impact businesses that are indicative of their social and environmental impact that fall outside of the typical definition of metric. For example, an investor may know that an artisanal company pays $1,000,000 to 700 artisans each year, but those social metrics don’t tell us how those artisans are treated by the company, whether they get paid up front, whether they have access to loans to cover the costs of inputs, whether dyes are being dumped in a nearby river, or whether artisans are working in safe conditions. For this reason, GBF looks at several other indicators when we assess the social impact of a company.
In addition, we are currently in the process of building out our Environmental and Social Management System (ESMS), which will help to integrate environmental and social risk management into our investment decisions, technical assistance, supervision, and compliance processes. Issues include human resources and labor, operational health and safety, biodiversity, and environmental stewardship.