Impact Investing

Measuring Impact beyond Financial Return

The rapid growth of the field of impact investing has soon been accompanied by the question about how to measure and assess impact. Many consultants have developed their own definitions, tools and frameworks. Some industry bodies have attempted to standardize indicators (e.g. GIIN/IRIS) or develop best practice (e.g. EVPA), to help investors in monitoring and measuring impact. Researcher have focused solely on impact measurement and provided useful insights. A more fundamental question, though, about how impact investing firms define impact and attempt to incorporate considerations of impact into the overall investment decision-making has not been exhaustively addressed yet. The focus on impact integration is particularly important and timely, since how to go about integrating impact considerations into investment decision-making essentially includes but goes beyond measurement.

In order to advance our understanding on how impact is defined by impact investors and on how firms actually attend to the tension between social and business goals, our study explored the process of impact integration by analysing its nature, dynamics and mechanisms. In particular, by studying experienced impact investing firms, and by observing this process at different levels (venture firm, fund, portfolio firm), we aimed to:

  • analyse how impact-focused investors formulate impact objectives in their investment process, monitor the achievement of these objectives, and manage the investments made in terms of impact;
  • analyse how impact investors cope with the often conflicting demands they face from their multiple stakeholders and explore the governance, organization and tools they deploy to cope with the complexity;
  • understand how impact and financial aspects are connected and identify the elements that relax or stress the tension between diverse objectives.

We focused on impact investing funds based in Europe who invest in the areas of social entrepreneurship, sustainability-focused business models and microfinance. The criteria to select impact investors was all those investors who adopt any for-profit investment approach that seeks a financial return, but also attempts to generate a positive and measurable impact in society. This condition also implied that the investor sets clear impact objectives before executing the investment and once the investment is made, the investor periodically monitors the fulfilment of these objectives.

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We gratefully acknowledge the financial support of the EIB Grant under the EIB Institute Knowledge Programme.