The Impact Power of Hemp and Innovation
How a new venture is enabling a leap in sustainable farming in Africa.
Tenets to enhance and align practices
There are many good resources and frameworks to identify target areas of impact (United Nations’ Sustainable Development Goals), classification of the impact strategy (Impact classes per the IMP framework), and measurement of the impact (GIIN’s IRIS metrics). However, resources for best practices on how to successfully set up your Impact Management and Measurement (IMM) strategy are harder to find.
Whether you are an impact-focused investor, fund manager, or entrepreneur, the “how” question can be a critical one to answer as it relates not only to how you function but also to how you communicate your strategy to external stakeholders. To bridge this gap in knowledge, we looked at IMM practices across our database of 3,000+ funds and mission-driven organizations to identify key tenets that can inform best practices for setting up and executing your Impact Management and Measurement plan.
On An upfront investment into IMM structures and systems can maximize impact return and minimize impact risks. These investments can include hiring the right people at the planning stage, spending time and resources on training, and buying or building impact data systems.
Aiming for impact success is not unlike targeting to meet your financial goals. To do the latter, firms need to determine their revenue streams, costs to be incurred, ways to collect and organize key financial data, and ways to drive decisions based on profitability outcomes. These concepts also apply to impact: firms need to determine which costs today will help them generate impact in the future.
Other recommendations in this area include engaging subject matter experts early on, training the entire team and dispersing impact responsibilities, and integrating impact into all systems and processes.
“Impact management” is the creation of a theory of change and a series of plans to embed impact into structures, decisions, and processes, and it results in a tight integration between a fund’s or enterprise’s work and its impact. Thorough and thoughtful impact management infrastructure can help achieve a meaningful impact return, and impact measurement can provide a feedback loop to improve impact management practices in the future.
Order matters, and when impact measurement planning precedes impact management, measurement can become a cumbersome, fruitless, and sometimes harmful endeavor because of the higher risk of executing a suboptimal impact strategy. Regarding impact management, we believe that problem statements, theory of change, and impact evaluation frameworks are the three most important practices to consider.
With the finite number of resources that fund managers and enterprises must measure and report on impact, many choose to focus on aesthetics in place of articulating impact progress.
Our team conducted a deeper-dive data collection exercise of reviewing impact reporting across 150+ investments, with a focus on what metrics are used, and how they are communicated. Over half of the investments supplied low-quality impact metrics, which we defined as metrics with an insufficient supporting explanation or a lack of connection with the theory of change. Less than a dozen investments offered all the necessary context: how the chosen metric is tied to the theory of change, whether the numerical value is an indicator of progress towards the goal, and how and when the data is collected.
Quantitative impact metrics also have the potential to distort the bigger picture if they are presented in isolation and/or are not selected carefully. As an industry, we overlook the importance of understanding when to use quantitative metrics, how to use them, and communicating the context and nuance behind the metric selection and the impact metrics’ numerical values.
Fund managers can lock impact goals into investment strategies by using incentive structures. Traditional incentives such as profit sharing at the achievement of a milestone, oversight through empowered governance bodies, and default protection have inspired impact-equivalent ones.
The most promising and scalable impact incentive structures include Impact Committees, impact covenants, and impact-linked carried interest. Impact Committees with decision-making rights can provide effective oversight and support for staying on target regarding impact goals. Impact covenants can help provide boundaries as well as incentives to keep stakeholders aligned on key impact objectives. Lastly, impact-linked carried interest can incentivize fund managers to balance impact objectives with financial ones.
These incentive structures can have a domino effect that helps drive goal-oriented decisions to ultimately generate the intended outcomes.
Limited Partners (LPs) and investors are increasingly influencing fund and enterprise IMM practices, especially impact reporting. We believe that LPs should use this influence to encourage funds to rely on expert opinion and industry practices to define their IMM strategy.
Impact measurement and reporting are an important part of the impact continuum of doing, learning, and iterating. This authentic spirit should be kept centerstage. In certain cases, investors’ desire for and positive reactions to simplified messaging can come at the expense of quality content in the impact reports – content that can demonstrate how beneficiaries are served, what the fund or enterprise learned, and how decisions will be made in the future. With the finite number of resources that fund managers and enterprises must measure and report on impact, many choose to focus on aesthetics in place of articulating impact progress.
To summarize our findings, please see some key recommendations across the tenets below for industry participants.
To Enterprises and Funds
To Investors
Related Content
Comments
Deep Dives
Featuring
Aunnie Patton Power
Author of Adventure Finance
May 18 - 12:00 PM EST
RECENT
Editor's Picks
Webinars
Featuring
Deborah Frieze
Founder, Boston Impact Initiative
March 30 - 12:00 PM EST
Featuring
Stephanie Cohn Rupp
Partner & CEO of Veris Wealth Partners
April 6 - 12:00 PM EST
A live, virtual fireside chat and audience Q and A with the Executive Director of…
News & Events
Subscribe to our newsletter to receive updates about new Magazine content and upcoming webinars, deep dives, and events.
Become a Premium Member to access the full library of webinars and deep dives, exclusive membership portal, member directory, message board, and curated live chats.
0 Comments