Measuring The Social Outcomes Of Impact Investments

Patrick DugganImpact Investing, InSight

impact-measurement

Pacific Community Ventures engages with a wide variety of constituents — small businesses, investors, volunteers, and policymakers — to create good jobs for working people and build an economy that works for everyone. So where does impact measurement fit in? To ensure we’re deploying every dollar and every hour of our time effectively, measurement is key to delivering on our mission.

We participate in impact investing in two ways.  As a Community Development Financial Institution, we are ourselves an impact investor. We offer diverse small businesses owners access to the capital and expertise they need to grow their businesses and create good jobs. We also work with other impact investors to evaluate the social and economic outcomes from their investments, so we can learn and reapply what works and ultimately build the field of impact investing.

PCV Borrower KainbiganToday, impact measurement is a combination of data and storytelling.  And stories are important because they bring to life “why” impact investing is so important. Stories like that of Charleen Caabay, a Fillipina chef who started her career as a street vendor and caterer. In 2012, she opened up a pop-up, Kainbigan, serving traditional Filipino food, inside a local venue in Oakland, CA.  Kainbigan became so popular that a year later she opened a brick-and-mortar location. Charleen was overwhelmed by a high-interest loan from another lender and turned to us, where she secured a new, affordable $85,000 loan and an advisor to help her deploy it. Today, Kainbigan is on the cusp of opening their second location and so far they’ve created 12 jobs for working people in the community.

Stories are an important part of impact measurement – but they are not enough. Data matters – and it will matter more as the field evolves. For example, as an impact investor, Pacific Community Ventures captures data not only from Charleen, but from the hundreds of small businesses with whom we work – data like the demographics of the small business owner and their employees; geography – where is the small business located, where are they hiring from; small business growth – both revenue and job creation; and the quality of those jobs in areas such as living wages, benefits, and wealth and skills creation.

But the reality is that today, people making impact investments ask for different types of impact information and different levels of depth and rigor.  For example, the banks, foundations and government agencies who support our work have varied requirements about the impact they want to see. Likewise, foundations who are beginning to invest some of their endowment in impact investing have very different internal requirements around how they will measure the results.

Over the last two years we’ve worked with a lot of organizations to create these kinds of bespoke impact measurement frameworks, allowing investors to make better decisions while adding new depth of rigor to their reporting. The Northern California Community Loan Fund was fortunate to have a grant that funded a loan rating system that we built for them, in order to understand ahead of time how well a given loan will lead to social outcomes. We support the conversation encouraging foundations to fund this kind of infrastructure, as that system is something dozens of CDFIs have said they’d want, but can’t afford out of their own slim operating budgets. Another CDFI we’ve worked with Community Capital, for whom we built impact measurement tools that, when applied,  made them realize their money wasn’t doing everything they thought it was and enabled them to make better investment decisions going forward.

We’re not suggesting that we can or should get to one approach to impact measurement – that we end up with one “right” way to account for things – like we do on the financial side. In impact investing, context and intent matter enormously so there will always be different approaches.

We are suggesting that the first step is to demand rigorous impact reporting for all impact investments, and to set aside funding to enable that. This is especially important for nonprofits, who are trying to address market failures with limited budgets, and may not have the internal expertise, capacity or money to develop and use impact management systems without support from their funders.

Today impact management still feels a little bit like a “nice to have”, not a must.  I believe for impact investing to reach greater scale, and truly generate impact – no greenwashing – impact measurement and reporting has to be a “must” built into all impact investments.