Hi, my name is Ewa Sobczyska and I am an international development specialist. I have worked on sustainability, monitoring and evaluation for over 17 years. I recently started exploring the topic of impact investing, thinking about how we can cross the divide between the public and private sector investment. What role do we as evaluators play, and what skills we can bring from the public sector that the private sector companies can utilize and build upon?
Impact investing emerged over 20 years ago as an opportunity for investors to target investments that would generate environmental and social impacts along with a financial return. While impact investing has grown in popularity and size, it faces a risk of “impact washing”, a practice where the term “impact investing” is utilized more as a marketing tool for attracting capital than for creating real-world solutions to environmental and societal challenges.
Most impact investors have a hard time articulating a “theory of change” for their investments. That is, they have difficulty outlining how the financial input provided (the capital) leads first to expected outputs (the immediate product or service of the investment) and then to the higher-level environmental, social, and economic changes (outcomes and impact), as well as how these changes can be attributed to the investment. As a result, the impact is often reduced to measuring only the outputs. For example, they will often measure the number of solar energy lamps distributed/sold under an investment scheme for increasing access to solar energy in a developing country, rather than the impact of that the solar energy lamps might have on the beneficiaries (such as the ability of children to study longer or opportunity for extended employment and increase in earnings for adults).
While there is a proliferation of metrics in impact investing, one of the ways to prevent impact washing is to ensure that any impact investment has a clear theory of change or logic model conceptualized at the start of the investment. These tools have been utilized for decades in the field of evaluation of public investments and spending. There is a wide consensus that they are the most pertinent and translatable evaluative tool for measurement in impact investing. The Rockefeller Foundation has consistently applied them in their impact investing practice. Acumen and LGT Venture Philanthropy have also been applying the tool in their investment thesis as have other investors and funds, such as Sarona Asset Management and BlueOrchard.
So, why should we evaluators care? One simple answer is that the tools we have worked with extensively in the sphere of public investments can be easily applied in the private sector. We, as evaluators, can play a critical role in the process of “translating” the language of the theory of change to the private sector. In addition, we bring the key AEA values of systematic inquiry, competence, integrity, respect for people, and common good and equity: all critical for ensuring transparency and accountability to avoid impact washing.
Utilizing the theory of change and other related tools, such as the logic model, can offer specific ways to map out, analyze, and measure not just outputs but actual impacts of investment. In this way, we can ensure that private capital addresses the environmental and social challenges we face today, with real impact.
- AEA SIM TIG Webinar: “What is the role of evaluation in the age of impact washing?”
- What is impact investing?
- Impact investing and theory of change: Impact Investing Handbook: An Implementation Guide for Practitioners
- Unpacking theory of change
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.