SIM TIG Week: Will Impact Investing Fulfill Its Development Promise? by Robert Picciotto

I’m Robert Picciotto, director general of the Independent Evaluation Group at the World Bank from 1992 to 2002. I oversaw evaluation there and in its sister institution, the International Finance Corporation, which uses equity finance to promote private sector development.

Evaluators charged with assessing the growing impact of the private sector in the social sphere face a significant challenge.  The United Nations Conference on Trade and Development estimates that $4 trillion to $5 trillion in annual investments are needed to support the United Nations’ Sustainable Development Goals. Because development aid and charity represent only a fraction of this investment, private investment is a critical component of achieving these goals. Impact investing is a highly promising strategy, although currently only a fraction of all investment is channelled toward social impact.

Ethical investors expect a financial return and want corporate decisions to take full account of the public interest. Their concerns range widely and can include the environment, consumer protection, community relations, human rights, etc. Reliable information about the social and environmental effects of ethical investments is necessary to meeting their needs. Luckily, development assistance agencies have already laid the groundwork by collecting and reporting data to satisfy public and philanthropic funders who demanded results as a condition of continued funding.

As highlighted at the Impact Convergence Conference, impact investing has largely focused on articulating goals and tracking progress through a battery of indicators. By relying primarily on self-assessment, it is failing to do the independent analysis required in financial reporting. 

The promise of impact investing could be fulfilled by bridging the impact investment and development evaluation worlds to share their vast operational experience, local country knowledge, and technical expertise in evaluation and investment. The multilateral development banks provide a starting place from their years of embedding independent evaluation into their corporate governance to identify, appraise, and fund major social programs.

Lessons Learned:

The Sustainable Development Goals and their adoption for goal-setting by the impact investing community may signal a relationship between social impact assessors and experienced development and evaluation practitioners. For example, ethical investors vitally concerned with results could seek the comfort of accurate social reporting by investing in derivatives that package social interventions funded by the loans and credits of multilateral development banks in Sustainable Development Goalbonds. These investment vehicles would be backed by existing systems to attest to the social value of each intervention. Finally, evaluation societies worldwide could establish communities of practice connecting impact assessment professionals and development evaluators.

The American Evaluation Association is celebrating 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.

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