Impact investor Q&A: supporting impact reporting
Peter Morris, Investment Director with Social and Sustainable Capital, explains why pragmatism drives this social funder’s approach to impact measurement.
Q: What impact requirements does SASC ask of its investees?
We generally lend to organisations that do not have shareholders to satisfy. That means the organisation’s sole purpose to begin with is impact. The lack of any potential for conflict with private gain creates a different dynamic than in some impact investments. What we then measure will vary a lot depending on the organisation in question. Our general approach is to be pragmatic and to avoid being too prescriptive. There’s a danger of overdoing it, which can be unhelpful to borrowers. We try to find a happy medium using what the organisation is already measuring and then recommending what might be additionally useful based on our needs and experience.
Q: Why is it important for the organisations that you support to provide evidence of their impact?
We want to understand the double bottom line which our money is being used to create. Commercial investors track profits. In our case, we try to understand how the input of money that we provide creates not only financial returns but also outcomes and impact for communities. This is why we produce an annual impact report in order to shine a light on the double bottom line of our portfolio.
Q: How do you encourage and support organisations in their impact reporting?
We think the most sensible approach is to be proportionate, so we support organisations by starting with the data which they currently have. Since the time and resources of our borrowers are limited, we take care not to over burden them by coming up with overly complicated spreadsheets to report against.
Where we are more hands-on is in homogeneous areas where borrowers are operating in the same sector. One such example is housing, where we have recently launched a new fund. In this area we have worked hard to understand and synthesize key performance metrics, based on existing information from borrowers and policy and infrastructure bodies. In this case we are able to create standard metrics and templates for organisations to report against. We are still quite a long way off creating simple uniform measures but this is a realistic ambition within a sector and will help with benchmarking in the future.
Q: What do you think are the biggest barriers to good impact reporting among charities and social enterprises? How can we overcome these?
Measurement is not easy – not even measurement of profit, which everyone tends to take for granted. Even though double entry book keeping was invented 500 years ago, commercial investors and accountants still disagree about how to measure single bottom line profit. Social investing has been around for about one-fiftieth as long and it’s more than twice as complicated. We need to be realistic about what is both possible and useful.
For me there are two key barriers – resources and culture. Firstly, organisations need to dedicate sufficient human resource to the problem. Secondly, we have a cultural challenge. I’ll give you an example - for many years European companies borrowed money from banks and never had to tell their story to bond investors in the way US companies were used to doing. There is a parallel here to the one that charities now face. Many are very used to appealing to donors for grants, but they haven’t had the need or opportunity to explain how longer-term investment (e.g. loans) leads to the delivery of outputs and creates long-term impacts. Getting better at telling the impact stories is a sector-wide cultural issue. Like anything, the more we do it the better we will become.
Q: What advice would you give to an organisation that has just embarked upon impact reporting?
I have three tips for any charity trying to become better at reporting:
Think hard about what impact you create
Consider what the most efficient way to gather evidence – focus on quality of metrics rather than quantity
Look for role models in order to benefit from prior learning and avoid reinventing the wheel