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Social Impact Measurement Among Canadian Impact Investors

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Social Impact Measurement Among Canadian Impact Investors

  1. 1. Social Impact MeasurementAmong Canadian ImpactInvestorsKarim  Harji,    Hilary  Best  Purpose  Capital  February  28,  2013   1
  2. 2. 2
  3. 3. Increasing Importance of SocialMeasurement 2012   2011   3
  4. 4. Project Objectives•  Determine  investors  knowledge   about  social  impact  metrics  •  Assess  investors’  reliance  on  social   impact  metrics  to  make   investment  decisions  •  Identify  the  tools  that  investors   use  •  Identify  frameworks  to  reduce   barriers  for  greater  investment  •  Provide  recommendations  to   government  aimed  at  improving   the  use  of  social  metrics   4  
  5. 5. Overview of Metrics and Impact Investing 5 Source:  Clark,  Rosenzweig,  Long  and  Olsen  (2004).  Assessing  Social  Impact  in  Double  Bottom  Line  Ventures  
  6. 6. Impact Investing: An Overview“Investments  intended  to  create  positive  impact  beyond  financial  return”  Provide  capital   Businesses  designed  with  intent  •  Transactions  tend  to  be  private   •  Not  unintentional  positive  social  or   debt  or  equity  investments   environmental  consequences  Expect  financial  returns   …  to  generate  positive  social  •  The  investment  should  be  expected   and/or  environmental  benefit   to  return  at  least  nominal  principal   •  Should  be  part  of  the  stated   •  Donations  are  excluded   business  strategy   •  Market-­‐rate  or  market-­‐beating   •  Should  be  measured  as  part  of   returns  are  within  scope   the  success  of  the  investment   Source:  JP  Morgan,  Rockefeller  Foundation  and  GIIN,  2010   6
  7. 7. Methodology•  Literature  Review  •  Key  Informant  Interviews     7
  8. 8. Knowledge Products 8
  9. 9. RESULTS 9
  10. 10. Who are Impact Investors and Why Do Metrics Matter•  Investors  vary  in  their  motivations,  assets,  risk  and  return  expectations,   social  impact  objectives   Financial  First  Investors   Impact  First  Investors   Optimize  financial  returns   Optimize  social  or   environmental  impact   Minimum  requirement  for   Minimum  requirement  for   social  or  environmental   financial  returns   impact   E.g.  banks,  pension  funds,   E.g.  Foundations,  family   investment  funds   offices,  impact  investing  funds  •  The  way  investors  use  metrics  varies  depending  on  their  purpose     10
  11. 11. INVESTMENT LIFECYCLE  Value  Definition   Due  Diligence   Monitoring   Reporting   •  Identifying   •  Selecting   •  Understanding   •  Communicating   impact  goals   investments   whether  impact   impact  with   and  investment   which  fit  with   goals  are  being   stakeholders   parameters   an  investor’s   achieved   impact  goals   11
  12. 12. Measurement Principles, Approaches and Tools Theory  of   Case  Studies   Change   Cost  Benefit   ESG  Screens   Analysis   Social  Return   on  Investment   12
  13. 13. Measurement Principles, Approaches and Tools Investor  Perspectives   “[Outcomes  are]  complex  and  even  if  •  Informants  favour  outcome  and   you  find  an  appropriate  metric,  there   impact  measurements  but  very   is  so  much  analysis  …  that  needs  to   few  are  able  to  collect  this   go  into  proving  that  a  certain   information   percentage  of  the  outcome  is  related   to  my  intervention.”    •  Informants  found  it  less  helpful  to   -­‐  Program  Officer,  Foundation,  QC   measure  metrics  at  the  portfolio   level,  due  to  sector  specificity  •  Limitations   –  Comparability  and  standardization   13
  14. 14. Value Definition•  Key  informants  lacked  consensus   Definition:  Theory  of  Change   on  the  value  of  a  theory  of  change    A  theory  of  change  is  a  map  that   describes  the  “process  of  planned   –  Non-­‐profit  investment  funds   social  change,  from  the   and  foundations  were  more   assumptions  that  guide  its  design   likely  to  develop  theories  of   to  the  long-­‐term  goals  it  seeks  to   change  to  clarify  their  goals   achieve”  (Community  Foundations   and  shape  organizational   of  Canada,  2012).     strategy   –  Financial  first  investors  using   investment  thesis  to  identify   their  values   14
  15. 15. Due Diligence•  Most  informants  use  metrics  in   Investor  Perspectives   the  due  diligence  phase  to  capture   “We  have  turned  down   long  term  value  and  reduce  risk   numerous  promising  •  Informants  identified  the  fit  of  a   opportunities,  even  going  to   venture  within  their  impact   the  length  of  doing  an  on-­‐ site  (and  costly)  due   parameters  as  a  key  criterion  for   diligence  trip  and  killing  the   investment   deal  because  we  weren’t  •  Investors  favour  quantitative  data   convinced  the  fund  manager   but  value  qualitative  factors  such   understood  the  importance   as  compelling  concept,   of  ESG  value  add.”     relationship  with  entrepreneur   -­‐  Manager,  Investment  •  Informants  had  previously  chosen   Fund,  ON   not  to  invest  in  an  organization   because  it  was  not  able  to   convince  the  investor  of  its  ability   to  achieve  its  social  objective   15
  16. 16. Monitoring•  Investors  monitor  their  investments   Best Practice: Working to  ensure  that  financial  and  social   Closely with the Venture   objectives  are  being  met   A private equity investor we spoke with works•  Informants  argue  that  metrics   closely with the should  be  monitored  on  an  ongoing   companies in which they basis  and  integrated  into   invest. They assume a management   board seat after investing in a company to develop a strong working•  Informants  are  divided  about   relationship with their frequency  of  monitoring,  depending   investees. They provide on  their  organization  and   more than just capital - stakeholders   ongoing mentorship and support to their investees.  •  Challenges  related  to  data   acquisition  and  capturing  impact   16
  17. 17. Reporting•  Metrics  help  investors  to   Investor  Perspectives   understand  and  communicate  the    “If  we  tell  our  investors   value  achieved  by  an  investment   that  we  invested  x  dollars   and  saved  y  GJ  of  energy,   does  that  really  resonate  •  Increases  accountability  to   with  them?  We  need  to   stakeholders;  increasing  pressure   think  through  who  the   to  do  so   audience  is  for  these   measures  and  right  size   them,  as  opposed  to  •  Marketing  value  of  metrics   picking  something  off  the   shelf.”    •  Challenge:  capturing  the  full   -­‐  Manager,  Investment   range  of  outcomes  related  to  their   Fund,  ON   investment   17
  18. 18. Best Practices•  Working  closely  with  ventures  •  Participatory  framework  design    •  Incentivizing  measurement    •  Values-­‐based  investing       18
  19. 19. CHALLENGES 19
  20. 20. Costs of Social Measurement•  Expensive  and  resource-­‐intensive   Investor  Perspectives   “[Measurement]  is  not  an  •  Many  investors  are  reluctant  to   “additional”  cost.  It  is  part  of   their  unique  selling   divert  resources  from  operations   proposition,  not  an  add-­‐on,   to  measurement   so  the  business  must   incorporate  this  information  •  Investors  pick  ventures  that   into  its  sales  presentations.”       integrate  measurement  as  part  of   -­‐  High  Net  Worth  Individual,   their  business   ON  •  Investors  are  open  to  subsidizing   measurement  but  have  not  had  to   20
  21. 21. Use of Third Party Service Providers•  Third  party  provides  provide   Investor  Perspectives   credibility  and  help  to  address   “It’s  important  that  we  have  a   investors’  lack  of  capacity  and   expertise   third  party  evaluator  so  that   loan  recipients  do  not  feel  their   responses  threaten  their  loan  •  Managing  impact  data  in  house  is   status.  Validation  is  also   popular  for  investors  with  limited   important  for  our  credibility.  "     resources  or  a  customized  approach   -­‐  Manager,  Non-­‐Profit   to  measurement   Investment  Fund,  Ontario  •  Many  investors  leave  measurement   to  the  venture  and  emphasize  the   importance  of  using  data  that  is   already  collected   21
  22. 22. Competing Priorities•  Investors  downplayed  the  role  of   Investor  Perspectives   metrics  in  their  ability  to  achieve   “Is  [measurement]  the  best  use  of   their  social  and  financial  objectives   ventures  time,  money  and  capital?  We   have  a  responsibility  to  use  that  data  and  •  Investors  are  concerned  with   not  just  collect  it  because  it  fits   ventures  diverting  attention  from   somebody’s  framework.”  –  Manager,   value  creation  to  measurement   Credit  Union,  BC    •  Investors  worry  that  a  focus  on   measurement  may  slow  the  sector   down  •  Investors  are  still  placing  capital,   using  metrics  where  they  are   helpful   22
  23. 23. RECOMMENDATIONS 23
  24. 24. For Investors•  Clarify  why  metrics  matter  •  Collaborate  with  other  investors  on  due  diligence  •  Share  sector-­‐based  strategies  for  metrics   24
  25. 25. For HRSDC and Other Government Agencies•  Incentivize  collaboration  between  investors  and  ventures  on  social   measurement  •  Encourage  the  creation  of  policy/regulation  that  advances  social  impact   measurement  •  Encourage  the  use  of  non-­‐financial  indicators  in  government   procurement  and  reporting  •  Develop  an  understanding  of  ventures’  use  of  social  metrics   25
  26. 26. About Us & ContactsABOUT develops  growth   To  access  the  knowledge  products  Purpose  Capital   PURPOSE CAPITALLINKS TO REPORTS ON ith  this  presentation,  and  investment  strategies  that  matter  to  the  world.     associated  w please  visit:   SLIDE http://www.purposecap.com/  •  Research    •  Strategy  +  Design   Karim  Harji   karim@purposecap.com  •  Investor  Advisory  +     Portfolio  Management    •  Financial  Structuring  +   Hilary  Best   Intermediation   hilary@purposecap.com       26

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