Impact investment’s open secret is spotty data. Better measurement can change that
Outlet: World Economic Forum
Impact investing focuses on creating positive impacts instead of merely avoiding social or environmental harm. But it can be difficult to measure, leaving business leaders unsure about how to implement it and whether it’s having any real effect. Recent academic research highlights the benefits of impact measurement and shows how managers should track impact investing efforts.
Recent research published by the European Group for Organizational Studies, based on 135 interviews with US-based impact investors, reveals that impact measurement can create three unexpected benefits.
First, impact measurement facilitates communication and alignment. Measurement provides a shared language for investors, asset managers and executives, helping them set priorities and navigate expectations, even when the data itself is not fully reliable.
Second, measurement categorizes investments. Instead of evaluating effectiveness in absolute terms, it is often used to classify investments as “impact-driven”, differentiating the more promising avenues to pursue impact.
And third, impact measurement sustains industry legitimacy. Since impact is central to the field’s identity, measurement – despite some of its flaws – remains necessary to validate claims and maintain credibility.
These insights provide important lessons to managers in any field of responsible and sustainable business. The pursuit of positive environmental and social impact is now central to corporate messaging and governance. Companies representing a market capitalization of $85 trillion already share some information on environmental and social performance. Business leaders should overcome their hesitation – as these benefits show, measurement is becoming essential.
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