Hi! I am Kirsten Andersen, an economic sociologist who has been studying the impact investing market for the past five years. My lens on impact investing comes from my interest in understanding when and how financial and social values are incorporated. Charitable foundations are particularly interesting impact investors, because– unlike institutional investors– they have always been in the business of creating financial returns (for their endowments) and social impact (to fulfill their charitable mission), though these efforts are traditionally undertaken separately. For my dissertation research (data gathered in 2018), I explored what American foundation impact investors and field builders sought from their impact investments—both the financial and social ‘returns’. In a series of interviews, I asked interviewees what makes an impact investment a success: failure or something in between?
With no ‘roadmap’ or established tools for assessing impact investments, it is perhaps unsurprising that respondents’ claims to social impact were diverse. They ranged from high level outputs (‘sustainable’ jobs created) to deep examples addressing equality through holistic, community-wide approaches, to very specific financial tools (e.g. self-liquidating loans).
While claiming some social impact, respondents also often candidly admitted that they found it difficult to know what exactly qualifies as social impact for the impact investing market. Often, the interviewees referred back to the foundation’s core values when discussing their investments’ impact. In this way, the foundation’s values were conflated with social value/impact experienced by communities. For example, one foundation founder claimed: “For some people, Tesla may count as an impact investment, but not for me.” However, the impact Tesla creates in communities does not hinge upon this founder’s values; rather it depends on the positive or negative effects of employment, manufacturing, environmental, etc. policies of the company. Thus, such reasoning represents a slippery slope due not to a lack of value-based investing but, ironically, because of it. Social impact may be overlooked due to introduction of individual values or assumed by equating intention and impact.
In a few cases, respondents translated social impact into financial value itself. For instance, one respondent shared that the organization makes impact investments in social enterprises. Since these businesses have a social mission, their financial success can be used as a proxy for social impact as it, too, is presumed to be successful if the business is successful. This proxy may in fact work when social enterprises are achieving their articulated impact (and not creating other unintended negative consequences).
The interviewee’s attempts to substitute organizational and financial value for social or environmental impact were an understandable attempt to anchor impact within a known context. These efforts reflect an important moment in impact investing’s evolution. Before standardized tools like the Impact Management Project (IMP) existed to help delineate intention and impact, pioneers in foundation impact investing had to rely on their own experience and understanding when making decisions about and assessing impact investments. This is a great reminder that while imperfect themselves, tools and strategies for centering impact are key to the potential for impact investors to affect change.
More information on this research can be found here:
- Emily Barman’s Caring Capitalism: The Meaning and Measure of Social Value — A useful book on putting together the concepts of social value and metrics:
- The Impact Management Project — A very practical tool for thinking about and implementing investor contributions.
This week, AEA365 is hosting Social Impact Measurement Week with our colleagues in the Social Impact Measurement Topical Interest Group. The contributions all this week to AEA365 come from our SIM TIG members. Do you have questions, concerns, kudos, or content to extend this AEA365 contribution? Please add them in the comments section for this post on the AEA365 webpage so that we may enrich our community of practice. Would you like to submit an AEA365 Tip? Please send a note of interest to AEA365@eval.org. AEA365 is sponsored by the American Evaluation Association and provides a Tip-a-Day by and for evaluators. The views and opinions expressed on the AEA365 blog are solely those of the original authors and other contributors. These views and opinions do not necessarily represent those of the American Evaluation Association, and/or any/all contributors to this site.e.