I have doubts that social scientists, scholars, foundation executives, impact investors and government managers are ever going to be happy. Their latest angst shows up in a myriad of projects and books which purport to meaningfully measure social investing in the developing world.
As repeatedly extolled, it seems that private sector investors are demanding that social investments not only make money, but also (really, no kidding) actually do good as well. The dream is that buckets of new money to finance the end of poverty will be forthcoming, if social investors could track their good deeds with the same ease that they track their deeds of trust.
Market capitalists measure success simplistically -- by financial returns, market share and stock price. If products or services incidentally advance the public welfare, all the better; if not, oh well. For investors, the metric that matters is in profit margins, not social missions.
Social entrepreneurs, however, evaluate performance across a nuanced set of metrics. They serve multiple stakeholders, all motivated by complex standards of community justice and ideals about the human condition. They lead us towards what we should measure, not what we can measure.
Consider a neighborhood newspaper anywhere in the world. Computing the value of a newspaper based on its circulation and advertising revenue produces its valuation, not its full value. A newspaper is a commercial venture, but also a social asset with a vital role in advancing free speech and fostering community cohesion. If we could measure the impact of free speech, and a particular newspaper came up short on our free speech analytics, what is the remedy? Defunding it?
A more immediate example is microfinance. Some celebrity academics have concluded that microfinance is not working as well as promised. With 190 million impoverished micro-borrowers voting with their wallets by renewing microloans every day, donors and social investors are understandably scratching their heads. Microcredit borrower's personal loan ledger (photo credit: Jonathan C. Lewis):
Microfinance has been horrendously oversold. Nearly all charitable fundraising (and corporate ad campaigns) over-promise -- it happens.
The pain of poverty is no less real, so the ethical challenge for every global citizen is, "What are the pragmatic, actionable choices?"
For starters, we can accept, without cynicism, that the poor, like you and I, are irrational economic actors who sometimes make short-term decisions to their long-term detriment. The difference is, only the poor are likely to get defunded for it by discouraged donors and social investors.
Let's avoid allowing the measurement mafia, even when motivated by good intent, to inflict a kind of hegemony over social change. We should insist the microfinance researchers conduct a randomized controlled trial (the presumed gold standard of social science) to tell us if poor women are better off without any opportunity to earn money for themselves.
We should evaluate the evaluations. Are the studies flawless and worthy of academic tenure or are they themselves over-promising? Can we rely on them for social investment decisions? Economic development and scholarly research alike deserves scrutiny.
Let's not target our dollars at only what we can document, instead of what we can dream.
We can all agree or disagree about the social impact – whether good or bad. Much is subjective to the outsider. However, the investors know what they seek. I’ve worked in different cultures and countries, in both private and public projects. I managed a project for two wealthy families in Turkey who wanted a private hospital as a “social investment”. They saw making money from wealthy patients as a way to subsidize care for those who could not afford the going rates, and some discounts went as far as 90%, some were given away. In the end, the hospital still made a small project and to some outsiders, it was still seen as a hospital for the rich. The investors made much less money on this investment than they made on their regular business ventures so they saw this as a “social investment.”
Beauty is in the eye of the beholder, as are social investments.
It seems you only see the challenges of improved measurement of social and environmental impact. But what about the upside?
You are right that the focus on metrics could drive an overly-doctrinaire approach that leaves some worthy efforts unfunded. But, with transparent, high quality, and comparable impact data, we may be able better direct exisitng investment to higher-impact projects. More importantly, we may unlock significant amounts of additional capital (millions? billions?) aimed at making the world a better place. I'm convinced that some potential impact investors are sitting on the sidelines precisely because present efforts at measurement are inconsistent and uncertain.
Measurement of social and environmental impact will always be difficult and somewhat messy. But nascent efforts like the Impact Reporting Investment Standards (IRIS) are trying to povide data that will allow global citizens to do exactly what you seek -- make (better) pragmatic, actionable choices about which programs or investments to support.
We're in the early days of developing and driving standards for impact assessment. We practitoners may, as you suggest, never be happy. But we should at least give it a shot.
However, I do not see any evidence whatsoever to support the contention that vaults and vaults of additional social capital is waiting to discover its soulful investment purpose if ONLY decent techniques to measure impact existed. Quite the opposite. The fledging academic efforts to measure microfinance’s impact are generating a cynicism (“nothing works”) among current social investors and donors, not unleashing new money. Indeed, I think the main economic benefit from the measurement and metrics crowd may be consultant job creation here in the West.
It seems axiomatic to me that enduring economic development is grounded in changing human behavior – educating, e.g, a young girl about her rights, family planning, etc. In the town of Sidi Bouzid, Tunisia, where Mr. Bouazizi burned himself to death and launched the Arab Spring, is an economic development organization called Karama. Its frontline multi-sectoral approach recognizes the layered complexity of social change. To justify itself to scholars and funders in the West, Karama would be shrewd to pick metrics that it could unquestionably quantify (and achieve!). But in Arabic Karama means “dignity” and dignity is hard to measure.
I am for accountability, but I am against cramming the human experience into compartments and book chapters. Sometimes, indeed oftentimes, civilized progress is fragile, unpredictable and immeasurable.
I have felt similarly about impact investing. If we create an impact investing industry, or call for the creation of an impact asset class, we may kill our core impact values. Social impact should not be the domain of an asset class, nor an association, nor an industry. It should not be a 5% portfolio allocation. Impact is a reflection of who we are as a society. It will, if society continues to deepen its values, permeate every capital decision anyone makes. And that is about a lot more than metrics or measurement or bragging.
Our capital is us. 100% of capital is allocated to our values; maybe our values are only 5% what we say they are.
I am a fan of GIIN because GIIN can be the nexus of a conversation.