Part 1. Impact investing
The Impact Investment Industry has been characterized by its focus on social metrics. In an attempt to understand the social and environmental performance of their business, companies are measuring impacts ranging from access to healthy food, student GED attainment, or services for the deaf.
Industry leaders such as GIIN, Investors Circle, and Acumen Fund have preached about metrics’ potential to create a more efficient social impact. It creates transparency. It enables investors to manage, and remain accountable to impact objectives. From a macro perspective, measurement of social impact allow for aggregation of data into performance benchmarks and provides market intelligence that can inform investment decisions. It’s easy to see why so many are eager to put numbers to their work.
But as investors are proudly sporting their calculators and drooling over their spreadsheets, little focus has been placed on the non-quantifiable impact opportunities a social enterprise can make.
Below are three cases where social impact was achieved by means that are not measurable. While impact metrics can and should continue to be the cornerstone of the industry, these cases should force investors to reevaluate and look beyond the numbers to maximize social impact.
Sometimes the best approach towards social impact cannot be measured
The following passage is from Community, Creating a Structure of Belonging by Peter Block. The last two paragraphs summarize the point beautifully.
“The story starts when four leaders were asked to work with a group of urban youth.” “ Joan and Michael Hoxsey and Geralymn and Tom Sparough were four white overeducated adults when they first met with a dozen streetwise African American youth in what began as an intervention to help out youths, including a full curriculum on what these young men ‘ought’ to learn about relationships.
Shortly into the effort, the Hoxseys and Sparoughs realized that to make any difference in the young men’s lives, the adults had to try to understand who these young people were. So they threw out the curriculum and decided to simply hang out with the youth. They listened two nights a week for eight months. The listening was hard, the language was hard, the stories were heartbreaking.
At first it seemed the young men were unreachable, and any attempt to help would be futile. Then, at some point the adults listening made a difference. The adults and the young people began to trust one another. As one young man put it, ‘The reason I respect you so much is because you may be the only people who listen. Everyone wanted to tell us to ‘pull up our pants’ and tell us how to live.’ Something valuable was built and in the end the ‘things’ the adults wanted to teach about relationships were taught by simply changing the nature of the conversation.
One of the challenges facing relational approaches such as this is that they do not measure well. If we were to take a conventional approach to measuring these efforts we would look for computer skill improvement and how many got their GED diplomas. The report would give low marks to the easily measured expected outcomes. We would probably conclude that the youths were not ready to learn. We would not consider the computer and GED efforts a failure in leadership – that would be too strong an indictment of our current thinking.
The social outcomes of the Hoxsey’ and Sparoughs’ work would most likely not be valued by the assessment at all, nor would their leadership style show up as a positive factor. Conventional measures would miss the essence of the humanity and restraint that led to transformation in the form of a group of young African Americans finding four white people, in positions of leadership whom they could trust.”
Connected the young and experienced to learn from each other.
Measured Social Services and products can do more harm than good
In his pithy article Why Servanthood is Bad, John Mcknight describes why a small deaf community in Martha’s Vineyard thrived (had same rates of graduation and marriage as those who could hear), while the mainland Massachusetts deaf community, flooded with advanced social services, was not nearly as successful. The latter case showed how measured services can do more harm than good.
McKnight explains what led the first community’s to success; “The one place in the United States where deafness was not a disability was a place with no services for deaf people. In that community all the people adapted by signing instead of handing the non-hearing people over to professionals and their services. That community wasn’t just doing what was necessary to help or to serve one group. It was doing what was necessary to incorporate everyone.” This comprehensive solution doesn’t have a clear ROI, or any results tied to any particular organization. The solution couldn’t be led solely by one organization or business; it was led by society at large.
Conversely, on mainland Massachusetts, social services programs based on “deficiencies”, while well intended, played a role in reinforcing the very problems they sought to mitigate. The bigger danger is that vanity metrics on these services may initially appear sexy, easily understood, and marketable: “we extended services to 10k deaf people at a reduced rate.” As impact investors, we need to make sure we don’t easily fall for these vanity metrics.
Social Impact can come from how we approach relationships, rather than what we do.
In the article Aspiring Social Justice Ally Identity Development, Keith Edwards details three primary motivations for social justice work and how miss-motivation can lead to burnout, more inequality, and other unintended consequences.
He describes the nuance that comes from an ally seeing themselves as “selfless,” a “hero,” “helping others,” or wanting to act upon one’s “privilege.” ... Do you see yourself in this way? If so, I’d suggest reading the article and seeing what unintended social impacts you may be having.
The best opportunities for positive social impact, according to Edwards, comes from relationships where all stakeholders work with each other, as equal partners. Everyone sees how they are personally affected by the issue, and their personal stake in making change.
As impact investors, we need to ask ourselves: What is the nature of my relationship with an entrepreneur? What is their relationship with those they serve? The answer to these questions will shed light on how impact will manifests itself. It is not only what we do, but also how our relationships form that have a social justice impact.
Part 2. Action
These impact approaches are intricate, nuanced and difficult to measure. So, with this knowledge, how should we in the impact-investing field react?
1. Stop trying to fully understand social impact through a number
Recognize that numbers do not tell all. “Not everything that counts can be counted, and not everything that can be counted counts.” Numbers cannot and never will be a full means to understand or solve a social issue. These are people, not math problems. The nuance of human systems change, and individual empowerment cannot be captured numerically.
2. Form Co-Teacher/Co-learner relationships with those you strive to impact.
Yes, you have a snooty MBA from a prestigious University.
Yes, you worked at an esteemed investment bank.
And Yes, your ex-coworkers hail you as a business minded MLK.
But unless you spent your childhood living on food stamps, or were affected by gun violence first hand, don’t even dare to think you understand what those affected are going through. Don’t dare to think you know how to solve their problems. Don’t act as if you will be their savior; it belittles their abilities and sets you up as a superior.
Relationships amongst investors, investees, and impact recipients need to be of a symbiotic co-teaching and co-learning nature. Since many social issues are deeply experienced based, and often driven by social identities, all stakeholders need to recognize what they understand and what they do not. They need to delve into intergroup dialogue to understand how best to have impact.
3. Multidisciplinary teams are needed on impact investment funds.
You need business people. You need math people. You need social science people. You need people who have experienced the issues first hand.
To solve a complex social issue requires a complex set of perspectives. Talk to the youth at the neighborhood center. Ask the deaf people if they even need services. And as you accumulate perspectives, expect a complex solution … most likely one that can be both measureable and immeasurable. Which brings me to one last action …
4. Evaluate both the quantifiable and immeasurable aspects of impact.
Both are critical parts to solving social problems. Don't let the flashy numbers overshadow your focus on what cannot be measured.