Monitoring and evaluation for impact investing

Theme type:

Impact investment aims to create positive social change alongside financial returns, thereby creating blended value. Assessing the intended and actual blended value created is an important part of impact investing.

Impact investments differ from earlier forms of socially aligned or socially responsible investments in that the intention behind the impact investment is to have a positive effect on society as opposed to merely avoiding negative effects (Flynn, Young, & Barnett, 2015 p.11). 

History of impact investing

While impact investing was coined as a term in 2006, its origins go back at least as far as the 1970s when concerns were raised about the social and environmental costs of financial returns. The 1980s saw growth in the number of funds that appealed to socially responsible investors. This movement continued growing in the 1990s; including, for example, the launch of the Domni Social Index.

However, it was only in 2007 that the term impact investing was coined by a group of investors convened by The Rockefeller Foundation at the Bellagio centre. This was the first time a name was put to the type of investment that was made to generate both financial returns and social and/or environmental impact. Moving into the 2000s until the present, impact investment has continued to grow in prominence and, along with it, impact measurement practices that serve to differentiate this type of investment from others.

Figure 1: The emergence of impact investment

Diagram of impact investment timeline from 1970s to 2020s

Key Characteristics of Impact Investing

The following characteristics distinguish impact investing from mainstream or traditional investments:

  • Self-identifies as an impact orientated investor (i.e. aims to have a positive environmental or social impact) - Impact investments are made with the explicit intention to help address social and environmental issues like climate change, hunger, poverty, homelessness, and the HIV/AIDS epidemics.
  • Delivers a Financial Return on Capital - Impact investments are foremost a business activity and, therefore, are expected to yield a financial return on capital or at least to break-even.
  • Spans a broad range of financial instruments and sectors - Impact investments can employ a variety of financial instruments, all with different risk-return profiles, from cash equivalents and microfinance to private equity and clean technology.
  • Assesses social/environmental impact regularly – Impact investments require regular assessment and reporting of the social and environmental performance investments to ensure transparency and accountability and inform potential investors.

There is often confusion over the distinction between impact investing and other types of investment. The figure below indicates a continuum of donating to investing, based on the activities and objectives of the investor type

Figure 2: Impact investing relative to philanthropy and investing

In the figure above, we have adopted the Rockefeller Foundation’s representation of differences between each type of investor and blurred the boundaries between each group to indicate that this representation is a continuum.

Each stakeholder varies according to their screening criteria, the expected financial and impact returns as well as the types of organisations in which they seek to invest. Based on these distinctions, other stakeholders, such as a Foundation, may match the criteria for direct impact investors without necessarily self-identifying as an impact investor.

Mapping impact measurement and management (IMM) and the investment cycle

We developed the cycle below based on the UN Results Based Management cycle, which is commonly used in donor and government-funded programmes. There are numerous representations of the IMM and investment cycles. We have developed this figure based on our observations of the intersection between the impact investing and small and growing business (SGB) support ecosystem. We have also mapped BetterEvaluation’s Rainbow Framework to this cycle, to communicate the way the IMM process maps to a traditional evaluation process.

Figure 3: Mapping IMM and the investment cycle

Particular features of monitoring and evaluation for impact investing

Define | Understanding what is being evaluated

Theory of change

Impact investing makes considerable use of theory of change for assessing the likely outcomes of potential investments, and for managing and accountability for funded projects. Theories of change support the use of previous research evidence about the outcomes of similar projects.

Case study: TUHF’s journey to better understand and manage their impact

Founded in 2003, TUHF is a commercial property finance company which aims to implement effective and cost-efficient solutions for inner-city developments in South Africa. TUHF invests in emerging property entrepreneurs, many of whom struggle to access traditional and affordable finance. These enterprises largely refurbish neglected, under-maintained and dilapidated building in central urban areas.

While TUHF had a long history assessing the direct results of their investments, the broader effects and unanticipated effects on employment, crime, communities and the environment were less obvious. Thus, TUHF undertook a process of developing a theory of change with an accompanying impact measurement framework and tools, employing the Donor Committee for Enterprise Development (DCED) Standard.

TUHF made use of an organisation-wide collaboration and an iterative development process over the course of two years. The resulting impact measurement framework has enabled consistent tracking and assessment of TUHF’s progress and achievements. Specifically, TUHF reports experiencing the following benefits:

  • Improved ability to communicate a consistent and coherent impact story to investors and more harmonised reporting.
  • Greater opportunities to secure funding from a wider variety of investors, including government and development finance institutions.
  • Stronger evidence on TUHF’s theory of change, which has unlocked opportunities to design and test new inventive products.

Read more on this case study and others in the African Evaluation Journal

Identifying potential negative outcomes and impacts

Impact investors use impact measurement and management not only to generate evidence about their contribution towards positive environmental and social impact but also to understand where they may be generating negative impact. This is particularly important because, without the intentionality around measurement, negative impacts can go unnoticed and unchecked. In short, measuring impact validates whether investors have actually made an impact investment.  As impact investing becomes more mainstream, measuring impact is necessary to invest responsibly and make sure that investments aren’t distortionary.

Frame | Intended users and uses, key evaluation questions and values to be used

Intended users and uses

The most common types of users and uses of impact measurement for impact investing are:

Impact investors

  • Understand and compare the effectiveness of different investments and grow their portfolios.
  • Communicate the value of their investments, both internally and with external stakeholders.

Investees or enterprises

  • Determine the progress of their investments toward their impact objective and change activities to improve their impact.

Investment managers

  • Understand the mechanisms of change that determine the performance of their assets under management
  • Ensure that any negative interactions are identified and mitigated

Policymakers / third-party organisations

  • Progress regulation regarding impact investing in a way that protects target populations and empowers investors to transact with new instruments in a safe financial context.
  • Replicate and scale interventions that have proven positive impacts.

Common impact evaluation questions

Impact relates to the most aspirational element of a theory of change: the broader change the programme intends to enact. Therefore, impact questions will be specific to a programme. Below are a few common categories of impact questions one could begin with:

  • What progress has been made towards achieving the intended impacts?
  • Is there evidence that the programme is contributing towards impacts?
  • Are there other programmes that may be enhancing or detracting from the possible impact of the programme?
  • Are there any unintended (positive or negative) effects arising from the programme?
  • Has the programme produced any unanticipated impacts?

Describe | Answering descriptive questions

Indicators, measures and metrics

Organisations adopt metrics based on their specific context, activities, and objectives. Organisations may adopt standard metrics, custom metrics or create a metrics set.

  • Standard metrics: Generally established by research institutes, they tend to be categorised around thematic areas or organisation type. Examples of standard metrics include: IRIS, BOND, ;GuideStar, Robin Hood, GIIRS, etc.
  • Custom metrics: Sometimes based on standard metrics, these are created by an organisation to be more relevant to their particular context and intervention.
  • Metrics set: A grouping of metrics organised around a specific programme or activity. This can be a good practice when an organisation is managing a diverse portfolio. 

Metrics should be relevant to the activities and objectives of the investment and investment portfolio. It might be appropriate to choose SMART indicators - specific, measurable, achievable, relevant and time-bound.

When selecting standard metrics and/or developing custom metrics, it is helpful to consider the following guidelines:

Figure: Guidelines for selecting metrics

Adopted from Sopact.

In addition to the criteria above, it is important to consider the balance of quantitative and qualitative indicators and data. While quantitative indicators can be aggregated and allow an understanding of breadth, data collected through qualitative indicators provide more depth of understanding and in some case can also be aggregated. When collecting data related to qualitative indicators, it is also important to ensure that the voice of the end client/user is captured. A useful case study of using visual self-assessment scales about level of poverty is provided in the box below.

Case study: Collecting self-assessment scale to elevate the voice of beneficiaries

Poverty Stoplight is a method of inclusive analysis used by member organisations. Individuals are engaged by using self-assessment tools coupled with fundraising support to help targeted clients to play an active role in determining the services that are most useful to them. The self-assessment tool is a survey which assesses poverty levels using 50 indicators grouped into 6 dimensions of poverty. For each indicator there is a picture and definition for very poor (Red), poor (Orange) and not poor (Green).

Targeted clients of Poverty Stoplight’s member organisations are surveyed regularly. The progress clients make in reducing their relative deprivation scores is used to determined the changes member organisations like The Clothing Bank (archived link)have contributed towards in their clients’ lives. Participatory approaches to understanding impact are appropriate when they are pragmatic, ethical or both. “Pragmatic because better evaluations are achieved (i.e., better data, better understanding of the data, more appropriate recommendations, better uptake of findings); ethical because it is the right thing to do (i.e., people have a right to be involved in informing decisions that will directly or indirectly affect them, as stipulated by the UN human rights-based approach to programming.)"

This approach is region and sector agnostic. It is used throughout the majority world as a participatory analysis of impact.

Adapting standardised metrics

While creating customised metrics is important to ensure that the data you collect is relevant to your activities and theory of change, organisations also commonly draw on standardised metrics. When adopting standardised metrics, the organisational strategy should be considered. For instance, if the impact investor is interested in global goals, it is helpful to consider the indicators provided for the Sustainable Development Goals (SDGs).

Other examples of standardised metrics include: 

  • Impact investing - IRIS
  • Sustainability - GRI
  • Community (non-profit) - Guidestar, Robinhood
  • Sector-specific
  • Custom - to fill the gaps

Read more examples of standardised social impact metrics.

Many of these organisations have provided guidance on how their metrics are aligned with other sets of standardised metrics. For instance, the GIIN provides guidance on IRIS alignment to the SDGs and other assessments and reporting frameworks.

The case study below describes how one investor in South Africa is aligning their investments to the Sustainable Development Goals.

Case study: Aligning to the Sustainable Development Goals

Genesis and Impact Amplifier conducted a landscape mapping study on IMM in South Africa. While many stakeholders engaged as part of the landscape mapping study are thinking about the SDGs only at a thematic level, one mainstream investor who has impact funds ‘the investor’ described the involved process that their organisation undertook to align to the Sustainable Development Goals.

According to this investor, the SDGs “provide a good platform to promote impact and sustainability of investments.” To align their investment portfolio to the SDGs, the investor reviewed each of the Sustainable Development Goals and the associated indicators. Next, they reviewed all reports related to their existing portfolio and collected data from portfolio companies to track how each of their investments directly contribute to the SDGs. Additionally, their team identified indirect links or contributions to the goals, as well as how their activities may negatively contribute to each of the SDGs. So far, the investor has completed this process for 75% of their funds.

According to the investor, their efforts to align investment activities to the SDGs have resulted in a number of benefits for the organisation. Clients increasingly have an appetite to understand how organisations are integrating the SDGs into their work to understand their impact on countries and communities, and the investor is able to communicate this value.

Perspectives on standardisation

Research indicates divergent perspectives on adopting standardised approaches for IMM:

Benefits of standardising:
  • Allows for comparison of results across interventions
  • When funders adopt standardised approaches, reduces the reporting burden on organisations
Costs/challenges associated with standardising:
  • Ensuring that metrics are still relevant to the organisation’s work and context

Using economic metrics

It may be useful to consider assessing economic performance, using economic indicators and economic analysis. Economic analysis can often provide part of the mixed methods evidence needed to support an impact assessment. Economic analysis offers a complementary set of methods for considering the costs and consequences of resource allocation decisions. It is, however, not sufficient in the absence of supporting information to describe impact. Social Return On Investment (SROI) is a common economic method used for such an analysis.

Understanding causes | Methods for answering causal questions

Experimental and quasi-experimental methods (such as using control groups or comparison groups) are commonly used to understand causal inference. However, they are not always appropriate or possible. Therefore, rather than focusing on establishing attribution, many stakeholders use other methods for establishing contribution across the impact thesis.

These methods include approaches such as Contribution Analysis and Outcome Mapping. These approaches rely on the combination of information with reference to a theory of change to reduce uncertainty and generate reasonable confidence that impact is contributed towards, at least in part, by the investment.

The impact investing landscape has also attempted to define methods for addressing causality for impact investments. Some of these approaches include:

Synthesise; Report and support use | Combining and using evidence about a single investment and/or about multiple investments

Traditionally, evaluations have distinct activities for synthesising evaluation evidence and utilising this information. However, these phases may not be distinct or may not be given equal focus when applied to the evaluation of impact investments. For example, synthesis might involve inputting data into a dashboard in order to visualise information, and this dashboard might also constitute the report and use of the data.

Synthesis, reporting and use of impact measurement information has evolved over time:

Metrics 1.0: Accountability

In the earlier days of impact investing, certain fund’s assessments did not go further than sharing anecdotes. However, leading funders began distinguishing between inputs, outputs and outcomes, and started making sense of data in order to assess their achievement of objectives. Over time, investees and grantees were increasingly asked to report data to enhance accountability to funders.

Metrics 2.0: Common standards

Eventually, there was growing recognition that shared measurement standards would be beneficial for synthesis and use in the following ways: 1) Enable comparison of results across investments and funds; 2) Distinguish impact investing from mainstream investments; and, 3) Increase the attractiveness of impact investing for those not well-versed in development objectives and, in so doing, increase the flow of funds into socially- / environmentally-oriented investments. An example of common standards is IRIS.

Metrics 3.0: Value creation

A number of funds, industry associations and communities of practices are currently discussing “Where to next for impact measurement and evaluation within impact investments?”. Many investors, investment managers and investees (portfolio companies) believe that credible impact measurement and evaluation can contribute towards:

  • Business value, through the use of evidence to improve resource allocation and efficiencies
  • Customer value, through the use of evidence to improve products and services
  • Social value, through the use of evidence to improve impact
  • Value to the ecosystem, through the use of evidence to generate greater interest and improved practices in impact investing
Case study: Learning and value creation in Humanity United’s Working Capital Investment Fund

Humanity United launched the USD 25 million Working Capital Investment Fund in response to the challenge of modern day slavery. The Fund aims to catalyse innovation in investee companies to address forced labour, bonded labour, exploitative domestic servitude, child labour, sex trafficking and forced marriage in global supply chains.

Social Impact Advisors produced a case study in 2016, at which point the Fund had made the following investments:

  • Provenance, a UK-based start-up, uses blockchain technology to trace products throughout a value chain, generating verifiable data on labour practices. This traceability solution also allows workers to report working conditions.
  • Ulula is a software solution that has cross-platform and multi-language capability enabling workers to securely report grievances, with in-built data analytics for global tracking and engagement.
  • QuizRR is an ed-tech company that provides worker training tech-solutions focused on workers’ rights and responsibilities. These solutions include data analytics to assess companies’ achievement of training objectives.

The Fund’s Impact Measurement Framework regularly collects and tracks data on 36 metrics across four dimensions of impact:

  • Growth of investees
  • Improved corporate behaviour
  • Reduction in labour exploitation
  • Contribution to developing the market for products and services that reduce labour exploitation

The metrics are further disaggregated across for business categories:

  • Worker voice
  • Ethical recruitment
  • Corporate risk assessment tools
  • Traceability tools

However, the Fund has gone even further, by employing developmental evaluation “to situate the Fund’s results and learning in the context of Humanity United’s broader mission”. Their Terms of Reference for this evaluation states that “[a] developmental approach is well suited to this dynamic system, market-driven context and must take into account the complex and sensitive issues around human rights and worker protections as they evolve”. Ultimately, the use of developmental evaluation is intended to stimulate double-loop learning for the Fund, its limited partners, its investees and the broader global labour market.


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