Measuring and managing impact has become one of the most important topics for discussion and debate over the last few years for those working in the impact investment ecosystem. Given the importance of performance management practices, it stands to reason that impact reports should also be a very important component of the impact management and measurement cycle.

In practice, a lot of time, energy and resources are devoted across the entire investment cycle to ensure that impact data is captured not only on investment deployment, but, entire support systems are built for due diligence, monitoring and evaluation, impact assessment, and investees are held to account for impact results from the investments made.

So then why is it that so few impact reports are published and shared in the public domain and more importantly, why does the data in the impact reports not reflect the effort that has been put into the process to collect, analyze, and verify impact data?

Because of our specialist impact management and measurement practice, we spent an enormous amount of time to consider, read, analyze and benchmark impact reports.  This is to guide not only our own practice, but also to ensure that the impact reports produced for our clients are globally comparable.

However, over the last few years we have seen a few trends that is cause for concern:

1. The first is that notwithstanding the enormous amount of effort we put into conducting impact assessments, and clients paying us for the impact analysis – we do not see the impact reports in the public domain. The question we grapple with is - why is most impact reports for internal consumption only?
2. Where impact reports are shared in the public domain – it is a rework of the outcome of our impact assessment – without much of the most critical elements. This is because the process of producing external reports is outsourced to PR, Communications and Marketing agencies – who are commissioned to produce glossy reports, without understanding the context of impact reporting and that tell only one side of the story (mostly positive), and omit facts as required by international standards and guidelines that we have used to conduct impact assessments. The question is – why is most impact reports devoid of unintentional or negative impact?
3. We were also finding that even though more and more clients are looking for impact data across their investment portfolios, they are only doing so because they must produce data for sustainability and integrated reports – which means they are only reporting on about a fifth of the data we produced. The question is – if companies commit to ESG or the SDG’s – why not report fully on these impacts and material risks?

In addition, we also noted that the content and structure of impact reports vary enormously. In this regard, our research indicated that:

1. Impact reports mostly focus only on a) inputs – how much was invested b) activities – what the money was used for c) outputs – i.e., how many people were reached.
2. Impact reports that go a step further and focus on a) outcomes – mostly only provide pictures without making clear why these individuals particularly were selected to appear in reports in the first place. And in most cases, the pictures were supported by the broadest and most general anecdotal quotes of experiences (impact) of the interventions. There is very little connection between the intent of the investment and the outcome achieved for those intended stakeholders.
3. Impact reports very seldom share a) the methodology that was used to collect, analyze, verify or even triangulate data b) share insights about what went wrong c) compare program performance to other similar interventions d) provide deep and meaningful insights and lessons learnt e) does not consider what would have happened anyway or f) how the impact can be directly attributed to the specific investor
4. Impact reports seldom describe a) what indicators were selected or agreed upon by all parties, b) what negative impact was experienced c) what happened when envisaged impact did not materialize d) how interventions were adjusted over time based on the data and insights collected
5. In most cases, impact reports do not follow any specific voluntary or mandatory reporting guidelines that requires a) a description of impact management approaches b) sharing of impact management frameworks c) quality control measures over impact management activities d) whether the data was assured and validated (by an independent third party) or whether it is self-assessed and self-declared

The insights shared above then led to us questioning a) whether clients are really interested in impact data to inform investment decisions b) whether clients are only looking for validation of investment decisions or whether c) they are really interested in learning from impact assessments to improve their impact management and measurement practices.

Over the past decade many practitioners and organizations globally spent an enormous amount of effort to a) define what impact really is b) how to manage and measure impact c) figuring out which methodologies to use to measure impact d) how to compare and benchmark the impact achieved and e) many companies even invested in technology (ourselves included) to make the process not only easier, but also more transparent and cost effective.

Our conclusion is that currently most impact reports are

a) a mixture of narratives, stories, case studies and anecdotal evidence

b) but without any real evidence that any substantial impact has occurred.

We are not totally disheartened by the status of impact reporting – and we choose to use this opportunity to share some guidelines for future consideration by impact reporters:

1. Impact reporting is the outcome of a long line of activities. It starts with an impact strategy and therefore we encourage clients to include their impact strategy, impact thesis and objectives, mandate, policy and investment statements in impact reports.  This not only provides a context for the data to follow, but clearly outlines and describes the impact intentions of the investor – i.e., what impact targets are aimed for.  This makes the evaluation of the impact data so much easier – the reader then has the basis to ask – was the impact objectives met (or not) and to what extent.
2. Impact reports will benefit from an impact management framework and key indicators – making clear what material impact is being sought – and by implication render all other impact above and beyond the intended impact i.e., unintended or additional impact. This also shows that additional value and impact was created, and that the investment was able to leverage and increase the impact.
3. Impact reports need to clearly identify and describe the intended stakeholders and therefor a stakeholder map as well as impact indicators per stakeholder group makes sense. Of course, this is where quantitative and qualitative indicators really add value. Quantitative indicators show the reach and qualitative indicators shows the depth and scale of impact.
4. Impact reports need to clearly indicate which guidelines and standards was used to compile the report – whether a) to define its impact (i.e., Impact Management Project), b) report on impact (i.e., GRI Guidelines) c) determine impact standards and processes (i.e., Operating Principles for Impact Management and Measurement), d) impact measurement approaches (i.e., OECD DAC Standards), e) its impact data collection methods (surveys, site visits, etc.).

Impact washing is real and receiving a lot of attention.  The impact investing sector stands to lose its credibility if we do not report transparently – and with clear evidence – of how investments achieve impact.

In addition, it places an enormous risk on the reputation of investors – as those who have travelled the journey of impact management and measurement can testify, impact reporting clearly indicates the intent of the investor. If we cannot provide evidence of how the investment intent has brought about impact, it might as well have been a standard investment, and not an impact investment.

Reana Rossouw is the owner of Next Generation Consultants. Next Generation is a specialist impact practice – that works with social and impact investors to develop impact strategies, impact performance frameworks as well as impact reporting. Reana also created the Investment Impact Index – which combines an impact management approach, with impact measurement activities and uses a technology platform to analyze and visualize impact data for impact reporting. More information about our impact management and measurement approach is shared on our website – www.investmentimpactindex.org.