Social Impact Measurement Use Among Canadian Impact Investors

Social Impact Measurement Use Among
Canadian Impact Investors

FINAL REPORT
FEBRUARY 2013

Purpose Capital gratefully recognizes the support of
Human Resources and Skills Development Canada

Purpose Capital also wishes to acknowledge the organizations that
gave freely of their time to participate in this study. They include:

ACCESS Community Capital The J.W. McConnell Family Foundation
Addenda Capital OP Trust
Alterna Savings and Credit Union RBC
Centre for Impact Investing Renewal2
Desjardins Investments Sarona Asset Management
Desjardins Sécurité Financière Social Capital Partners
Edmonton Community Foundation Sustainalytics
Infrastructure Ontario TARIS Advisors
Investeco Toronto Atmospheric Fund
Le Réseau d’Investissement Toronto Enterprise Fund
social du Québec Vancity
MaRS Cleantech Fund

Authors:
Hilary Best, Karim Harji

Research Assistance:
Alex Kjorven

Contact the Authors:
info@purposecap.com

The opinions and interpretations in this publication are those
of the authors and do not necessarily reﬂect those of the
Government of Canada.

Les opinions et les interprétations ﬁgurant dans la présente
publication sont celles des auteurs et ne représentent pas
nécessairement celles du Gouvernement du Canada.

Purpose Capital, in collaboration with Human Resources and Skills
Development Canada, recently released Guidebook for Impact Investors:
Impact Measurement, a guidebook for impact investors to help them enhance
their use of social metrics.

The guide provides investors with:
• A basic overview of social metrics for impact investing
• An outline of the issues and challenges of social impact measurement
• A summary of existing social impact measurement tools and a
description of how they are being used
• A set of diagnostic tools to help you think through key questions and issues
related to measurement and to select appropriate social impact metrics
based on your goals

The Guidebook is available for download at http://www.purposecap.com/
portfolio/guidebook-for-impact-investors-impact-measurement

TABLE
OF CONTENTS

ACRONYMS

EXECUTIVE SUMMARY

1.0 PROJECT CONTEXT 1

2.0 OVERVIEW OF IMPACT INVESTING 2

3.0 METHODOLOGY 3

4.0 RESULTS 7

5.0 RECOMMENDATIONS 20

6.0 CONCLUSION AND NEXT STEPS 23

SOURCES 24

APPENDICES 26

ACRONYMS

ESG Environmental, Social and Governance
GIIRS Global Impact Investing Rating System
GJ Gigajoules
HRSDC Human Resources and Skills Development Canada
IRIS Impact Reporting and Investment Standards
LEED Leadership in Energy and Environmental Design
LP Limited Partnership
SRI Socially Responsible Investing

5 ACRO NYMS

EXECUTIVE SUMMARY

1.0 Project Context
This document reports on the activities and results used to analyze and monitor the social or environ-
of the project, “Social Impact Measurement mental outcomes or impact of a project, venture,
Use Among Canadian Impact Investors”, funded or organization.
by the Community Development and Partnerships
In order to deploy capital, investors must have
Directorate, Human Resources and Skills Development
confidence that their investments will generate the
Canada (HRSDC). The purpose of this project is
financial and social returns they have targeted. In
to identify needs and priorities for Canadian impact
spite of growing interest in impact measurement,
investors as they relate to social impact
there remains a great deal of confusion amongst
measurement.
investors due to fragmentation in the approaches and
tools used to measure impact.
2.0 Overview of This report aims to identify needs and priorities for
Impact Investing Canadian impact investors as they relate to social
impact measurement. The key objectives were
to determine:
In Canada and internationally, there is a growing
movement towards the creation of social, environ- • The extent to which Canadian impact investors are
mental and economic value in addition to financial knowledgeable about social impact metrics;
returns. A diverse group of actors including individual • The extent to which Canadian impact investors
and institutional investors, ventures, non-profit rely on social impact metrics to make invest-
organizations and government are coalescing around ment decisions;
the concept of impact investing. • The kinds or variety of specific applications or tools
that Canadian impact investors use;
Impact investments are • Whether a framework exists that would: a) reduce
“investments intended to barriers for greater investment from social finance
investors; b) coalesce social finance investors in the
create positive impact beyond field of social impact measurement; and c) include
financial returns”. information on ‘lessons learned’ and ‘failures’, to
demonstrate the legitimacy and genuineness of
Impact investments are “investments intended to evaluation; and,
create positive impact beyond financial returns” • An understanding of what Canadian impact inves-
(O’Donohue et al., 2010). Impact investors are inten- tors and potential impact investors need to see
tional in their efforts to generate both social and/ regarding the social impact of an enterprise before
or environmental outcomes and a range of financial choosing to invest.
returns, from return of principal to above-market
returns, to the investor. This report also identifies opportunities for HRSDC’s
Community Development and Partnership Directorate
Just as a variety of financial indicators help inves- to develop policy options and present strategic
tors to assess potentially profitable opportunities, guidance to senior management on issues that have
inform investment decisions, and allow for monitoring implications for the development of the impact
of their investments, those seeking to generate investment marketplace in Canada.
non-financial returns use non-financial indicators to
inform their investment decisions. These indicators,
what are generally termed ‘social metrics’, are often

I EXECUTIVE SUMMARY

3.0 Methodology
The methodology consists of targeted primary and Key informants indicated
secondary data collection. This included a compre-
hensive literature review of key publications on the
a preference for outcome and
relationship between investors and social metrics impact measurements, yet
and twenty-two key informant interviews with inves-
tors who have experience in impact investing and/or
very few are able to collect this
potential interest in the area. information and instead rely on
Readers are cautioned that the findings from key outputs.
informant interviews should be considered anecdotal
as the project’s sample size does not justify any broad
conclusions about the perspectives of Canadan impact Scale of Analysis
investors as a whole. Investors differ on the scale of analysis they use when
monitoring social metrics – ranging from the invest-
ment level, to the portfolio level, to both. At the invest-
4.0 Results ment level, metrics are collected only as they pertain
to a single investment. At the portfolio level, metrics
are collected from all of an investor’s investments to
Who are Impact Investors and capture the overall impact of an investor’s activities.
Why Do Metrics Matter? Most informants were able to monitor metrics at the
investment level, while a few key informants measure
metrics at the portfolio level. Less than half of
As in the traditional investment universe, impact informants monitor metrics at both the portfolio and
investors vary in the nature of their motivations, individual levels, due to the challenge of capturing the
assets, risk and return expectations, and social impact sector-specific nature of impacts at the portfolio level.
objectives. Most investors have both financial and
impact goals that they seek to balance through their
investment decisions. Generally speaking, social Principles, Approaches and Tools
impact metrics help investors to ensure that their Key informants noted that their measurement prin-
impact goals are being met, but investors vary in ciples, approaches and tools vary by investment, by
their investment intentions and these differences are sector, by size and by asset class. Frameworks used
reflected in the ways that investors use metrics. include Theories of Change, GIIRS, IRIS, ESG Screens,
Social Return on Investment, Cost Benefit Analysis,
Measurement Principles, Sustainable Livelihoods and Case Studies.

Approaches and Tools
Limitations
Investors are keenly aware of the limitations and
There is no silver bullet when it comes to social impact challenges of existing measurement frameworks.
metrics, there are only approaches that are well suited These include comparability, standardization, and
for use in a particular context. cumbersomeness. Amongst investors, there is a desire
for comparability and consistency in measurement.
Metrics Types More than half of key informants indicated that they,
Investors must account for a variety of factors when or their ventures on their behalf, use a customized/
choosing between several different types of metrics. proprietary measurement system. Most key informants
Key informants indicated a preference for outcome felt that existing standardized metrics frameworks do
and impact measurements, yet very few are able to not meet their needs, due to the nature and diversity
collect this information and instead rely on outputs. of their investments. Customization has resulted in
a diversity of measurement methods which have
contributed to investor confusion in the field of
measurement.

II EXECUTIVE SUMMARY

When Investors Use Social Metrics
As discussed, investors use metrics at different times and for different purposes throughout the
investment lifecycle.

Investment Lifecycle

Ongoing
Value Definition Due Diligence Monitoring Reporting
Measurement

Identifying impact Selecting investments Understanding Communicating Continuing to mea-
goals and invest- which fit an investor’s whether impact goals impact sure impact after an
ment parameters impact goals are being achieved with stakeholders investment has closed

Value Definition While many investors favour quantitative data, several
By definition, an impact investor’s investment deci- investors noted the importance of qualitative factors
sions are guided by an intention to have a positive in their decision making.
social or environmental impact. One tool that is com- The use or lack of use of social metrics can make or
monly used by investors during this phase is a theory break an investment decision at the due diligence
of change. A theory of change is a map that describes phase. Many key informants had previously chosen
the “process of planned social change, from the not to invest in an organization because it was unable
assumptions that guide its design to the long-term to prove its social impact.
goals it seeks to achieve” (Community Foundations of
Canada, 2012). While the literature suggests a strong While key informants take the social impact of their
role for theories of change in the investment process, investments seriously, they also stressed the impor-
our key informants lacked consensus on its value. tance of being flexible, particularly for early stage
ventures that have not yet developed a track record.

Due Diligence
Most key informants use social impact metrics in the Monitoring
due diligence or investment screening phase, though Once the due diligence process is complete and an
these metrics are used in different ways depending investment has been made, investors monitor their
on the type of investor. Social metrics can serve as investments to ensure that their financial and social
risk mitigation tools, commonly achieved through objectives are being met. Investors will continue to
the use of environmental, social and governance monitor social metrics up until an exit from an invest-
(ESG) screens. Metrics can also help investors ment, though they differ in terms of how frequently
to capture the long-term value inherent in many they measure and face challenges in accessing data.
impact investments. Many key informants argued that metrics should be
Many of the key informants had strongly defined an intrinsic part of both the management of the orga-
investment themes or parameters, such as the social nization and the monitoring of progress. Investors
economy, clean tech, and environmental consumer face several challenges related to data acquisition in
products. Key impact metrics allow investors to the monitoring phase.
screen potential investments to make sure they fit
with their investment focus and expertise.
Reporting
When an investment is completed, metrics help
investors to “understand the value achieved” by
While many investors favour quantifying or describing the change brought about
quantitative data, several by an investment (Robertson, 2012). Metrics are also
helpful to investors who report on this value to their
investors noted the importance stakeholders. Accountability and marketing are key
of qualitative factors in their drivers for reporting on impact, while attribution
remains a challenge.
decision making.

III EXECUTIVE SUMMARY

Challenges

Costs of Social Measurement
Investors want to see demonstrable evidence that investments made in the measurement of an organization’s
impact will be useful and cost-effective in the development of the venture (Golden et al., 2010).With limited
resources available, many investors are reluctant to divert resources from operations to measurement. Some
investors noted that they pick organizations that already view measurement as a key part of their business.

Use of Third Party Metrics Service Providers
Third party metrics service providers are one option for investors seeking to measure impact and add credibility
to their ﬁndings. Some investors choose to collect and manage social impact data in house, while others leave
measurement to the venture.

Competing Priorities
Investors face many competing priorities for their time and resources. Many of the key informants downplayed
the role that social metrics play in their operations and in their ability to achieve their social and ﬁnancial
objectives. Investors expressed particular concern about having their investees divert attention from operations
to conduct measurement.

IV EXECUTIVE SUMMARY

5.0 Recommendations
While investor perspectives on metrics are highly individualized, a few themes have emerged around key
areas for the future development of the field of measurement. Recommendations have been categorized
by target group.

For Investors
1. Collaborate with other investors on due diligence
2. Share sector-based strategies for metrics
3. Clarify why metrics matter

For HRSDC and Other Government Agencies
1. Support collaboration between stakeholders related to metrics
2. Support ventures as they strengthen their financial and social reporting
3. Create incentives for investors and ventures to work together on social impact measurement
4. Encourage the creation of policy/regulation that advances social impact measurement
5. Encourage the use of non-financial indicators in government procurement and reporting
6. Pursue further research to understand whether the findings of this report are reflective of
the broader Canadian investment community.
7. Enhance understanding of investment structures that incentivize the alignment of financial
and social returns
8. Develop an understanding of the use of social metrics in social impact bonds
9. Develop an understanding of ventures’ use of social metrics
10. Explore the use of social metrics and how they differ by investor type
11. Explore the use of social metrics by foundations, specifically differentiated by impact first
and finance first

6.0 Conclusion and Next Steps
Impact investing continues to build momentum as new capital is placed in ventures that generate both financial
returns and social impact. As the field grows, it is anticipated that the role of social metrics will also grow, helping
both investors and ventures to define value, make decisions that yield the greatest financial and social value,
monitor progress and report to their stakeholders. Investors will continue to face issues of cost and competing
priorities until measurement is more fully integrated into the operations of social ventures. To facilitate this
process, this report has provided a number of recommendations to investors and government that could reduce
upfront costs through enhanced collaboration, understanding, and support. Follow up research could enhance
the applicability of the findings of this report to the broader Canadian impact investment community, as well as
exploring potential applications for different types of investors and investment vehicles.

V EXECUTIVE SUMMARY

SOCIAL IMPACT
MEASUREMENT
AMONG CANADIAN
IMPACT INVESTORS

1 S O C I A L I M PA C T M E A S U R E M E N T A M O N G C A N A D I A N I M PA C T I N V E S T O R S

SOCIAL IMPACT
MEASUREMENT

1.0 Project Context
This document reports on the activities and results of the project, “Social Impact
Measurement Use Among Canadian Impact Investors”, commissioned by the
Community Development and Partnerships Directorate, Human Resources and Skills
Development Canada (HRSDC).

In 2012, Purpose Capital undertook a comprehensive literature review and key
informant interviews with Canadian impact investors to understand their approach
to social impact metrics. The project also aimed to identify needs and priorities for
Canadian impact investors as they relate to social impact measurement.

The key objectives of the project are to determine:
• The extent to which Canadian impact investors are knowledgeable about social
impact metrics;
• The extent to which Canadian impact investors rely on social impact metrics to
make investment decisions;
• The kinds or variety of specific applications or tools that Canadian impact
investors use;
• Whether a framework exists that would: a) reduce barriers for greater investment
from social finance investors; b) coalesce social finance investors in the field of
social impact measurement; and c) include information on ‘lessons learned’ and
‘failures’, to demonstrate the legitimacy and genuineness of evaluation; and,
• An understanding of what Canadian impact investors and potential impact inves-
tors need to see regarding the social impact of an enterprise before choosing
to invest.

This report is designed to be useful to both impact investors and government officials
in providing a general overview of social metrics, how they are used, and what can be
done to support their development. This report also identifies opportunities for the
Community Development and Partnerships Directorate to develop policy options and
present strategic guidance to senior management on issues that have implications
for the development of the impact investment marketplace in Canada. Additionally,
it will serve as a foundation to support further work in this area by suggesting next
steps for project stakeholders.


2.0 Overview of
social metrics can be just as important and relevant
Impact Investing as financial indicators, given the intentional nature
In Canada and internationally, there is a growing of impact investments to generate positive social and
movement towards the creation of social, environ- environmental outcomes.
mental and economic value in addition to financial Figure 2 describes the way the social ventures create
returns. A diverse group of actors including individual non-financial value and where this value can be mea-
and institutional investors, ventures, non-profit sured. It also defines several different types of social
organizations and government are supporting the metrics: inputs, outputs, outcomes and impact. Inputs
development of concepts, tools and models that

Figure 1: The Spectrum of Impact Investment

GRANT PRIVATE SUBORDINATED SENIOR CASH GUARANTEES CASH FIXED PUBLIC PRIVATE
SUPPORT EQUITY LOANS LOANS INCOME EQUITY EQUITY

-100 % * -90 % to -10 % *
0% 1 % to 7 % *
8% + *

Grants “Soft” investments Capital-protected Commercial-return
Social returns only Very soft debt investments investments
Mix of grants and other capital “Blended return” equity Market-rate debt
Willing to lose some money Soft debt Equity
Willing to take below- Full commercial returns
market return Social benefit can be
* Anticipated Return a requirement

Source: F.B. Heron Foundation and Jessica Shortall (2009): “Introduction to Understanding and Accessing Social Investment”

take social, environmental, economic and financial are measures of the resources required to operate
value into account. Many of these actors are a venture (e.g. staff time). Outputs are measures of
coalescing around the concept of impact investing. a venture’s activities and operations (e.g. number
of workshops offered). Outcomes are measures of
Impact investments are “investments specific changes in attitudes, behaviours, knowledge,
intended to create positive impact skills, status of level of function that result from a
beyond financial returns”. venture’s activities (e.g. increases in income levels).
Impacts are measures of the difference between
Impact investments are “investments intended to the outcome created by a venture’s activities and
create positive impact beyond financial returns” the outcome that would have occurred without the
(O’Donohue et al., 2010). Impact investors are inten- venture (e.g. home ownership) (Clark et al., 2004).
tional in their efforts to generate both social and/
or environmental outcomes and a range of financial In order to deploy capital, investors must have confi-
returns, from return of principal to above-market dence that their investments will generate the finan-
returns, to the investor (see Figure 1). cial and social returns they have targeted. In spite
of growing interest in impact measurement, there
Just as a variety of financial indicators help investors remains a great deal of confusion amongst investors.
to assess potentially profitable opportunities, inform One of the main challenges is fragmentation in the
investment decisions, and allow for monitoring take approaches and tools to measure impact, which has
of their investments, those seeking to generate resulted in a lack of consistency and transparency in
non-financial returns use non-financial indicators to how impact is captured and communicated. Globally,
inform their investment decisions. These indicators, the Impact Reporting and Investment Standards
what are generally termed ‘social metrics’, are often (IRIS) and the Global Impact Investing Rating System
used to analyze and monitor the social or environ- (GIIRS) have gained visibility in recent years. At the
mental outcomes or impact of a project, venture, or same time, a host of smaller, decentralized initiatives
organization. Depending on the investor’s needs, continue to exist.


Figure 2: Impact Value Chain

INPUTS ACTIVITIES OUTPUTS OUTCOMES GOAL ALIGNMENTS

What is put into Venture’s primary Results that can Changes to social Activity and goal
the venture activities be measured systems adjustment

— WHAT WOULD HAVE
HAPPENED ANYWAY

LEADING INDICATORS = IMPACT

Source: Clark, C., W. Rosenzweig, D. Long and S. Olsen (2004). Double Bottom Line Project Report: Assessing Social Impact
In Double Bottom Line Ventures. Methods Catalog. Available at http://www.community-wealth.org/_pdfs/articles-publications/

3.0 Methodology 3.2 Key Informant Interviews
A series of key informant interviews were conducted
The methodology consists of targeted primary between October 8th and November 16th to identify
and secondary data collection. This approach was specific needs and priorities of investors with regards
designed to yield an overall assessment of the to social metrics.
importance of social metrics for investors, as well
as an identification of specific needs and priorities. Forty-six Canadian investors were considered as
Drawing on prior experience and expertise on social potential key informants; these individuals were
metrics, a comprehensive literature review was identified as having existing experience in impact
conducted and further contextualized by key investing and/or potential interest in the area. These
informant interviews. individuals were identified through a combination of
approaches: reaching out to key investor networks,
contacting social impact professionals, and tapping
3.1 Literature Review into the project team’s substantial networks. Of the
thirty-three investors that were contacted, twenty-
A comprehensive literature review was undertaken
two participated in key informant interviews. Key
between September 10th and September 21st, 2012.
informants represented a range of geographical areas
The review targeted key publications on the relation-
and reflected a diversity of preferences with regards
ship between investors and social metrics. A full list
to financial and social returns as reflected in the
of documents consulted can be found in the Sources
figures below.
section of this document.
Development of Questionnaire: To guide key
Consistent with the focus of HRSDC, the review
informant interviews, the project team developed a
focused on Canadian materials wherever possible.
questionnaire which attempted to surface investors’
Recognizing that other jurisdictions have made
perspectives on the use of social metrics, as well as
important progress on the use of social metrics,
key challenges and opportunities. The questionnaire
the project team also drew on international sources
is included in Appendix A.
where key best practices were identified. Publications
were selected on the basis of recommendations from Interview Process: A member of the project team
HRSDC as well as our own knowledge of relevant contacted potential key informants via email to
literature on best practices, lessons learned and explain the nature of the project and to request
recommendations related to the use of social metrics. their participation. A copy of this email is included in
Appendix A. Interview questions were sent in advance
to interviewees. Semi-structured interviews were con-
ducted via phone and lasted between 30-60 minutes.


Key Informants by Key Informants by Key Informants by Key Informants
Investor Type Experience with Years of Experience by Percentage
Institutional: 17 Impact Investment in Impact Investing of Total Funds in
Service Provider: 3 Has made an impact Not at aII 4 Impact Investments
Government: 1 investment: 18 0-2 years 2 0-10% 3
2-5 years 1 91-100% 11
Has not yet made an
5+ years 15 Intermediary 4
impact investment: 4
Did not report 4

Geographic Distribution of Key Informants

2 1
15 4


Key Informants by Impact Investment Focus Key Informants by Type of Securities
0 2 4 6 8 10 0 2 4 6 8 10
Newcomers Hard Assets

First Nations Other

Cleantech Liquid Debt Securities

Culture Real Estate

Marine/Ocean Public Equity

Fairtrade Quasi-equity/mezzanine finance

Children’s Issues Deposit/CDs/Other Short Term

Forestry Gurantees

Waste Management Private Equity

Education Loans

Urban Renewal

Natural Resources

Health

Community Development
Key Informants by Directness of
Water Impact Investments
Microfinance 0 2 4 6 8 10 12 14 16 18

Housing Though Funds of Funds
Poverty Alleviation Through Third Party Managers
Sustainable Agriculture Through Funds
Job Creation Direct Investments
Alternative Energy

Key Informants by Geography of Investment Key Informants by Organization

0 2 4 6 8 10 12 14 16 18 0 1 2 3 4 5
Global Non-profit investment fund

Middle East Investment Fund

Europe Chartered Banks

South America Consulting

Africa Credit Union

Asia Foundation

North America (Excl. Canada) Government

Canada High Net Worth Individual

Pension fund


Analysis of Findings: Members of the project team have included appropriate introductory context and
made detailed notes during each of their interviews. additional references in the report for those less
After each interview, key themes and findings were familiar with this topic.
identified as they related to the objectives of the
project. Once all interviews were completed, the There are a variety of persistent
project team met to share and synthesize key findings measurement challenges at the
and conclusions. international level that effect Canadian
The key informant sample was strongly representa- investors.
tive of experienced institutional investors. The
International measurement challenges: There are a
majority of key informants had more than five years
variety of persistent measurement challenges at the
experience in impact investing and held 91-100% of
international level that effect Canadian investors. For
their funds in impact investments.
example, the standardization versus customization
of measurement approaches, and shared versus
3.3 Limitations proprietary frameworks. While this report attempts
to describe how selected Canadian investors are
While this methodology was designed to deliver interpreting these challenges, it is not the purpose of
robust results, it is important to acknowledge and this report to resolve them.
account for some of its potential limitations.
International jurisdictions have made more
Inconsistency around language: The sector contin- progress than Canada: While HRSDC has expressed
ues to face challenges with language, where terms a preference for Canadian sources and perspectives,
that are often used interchangeably are in fact not. in many cases, international actors are working at
There can also be misunderstandings of what terms the forefront of measurement issues. For example,
represent or not, given the nascent nature of social a recent study from J.P. Morgan and the Global
finance in Canada. The project team attempted to Impact Investing Network states that 96% of their
address this by providing clear and concise explana- global sample of investors measure the social and/or
tions of all terms used.1 environmental impact of their investments, with 82%
using IRIS aligned metrics. These proportions indicate
Bias towards active impact investors: Since
a much more advanced state of measurement than
interviewees were targeted based on their current
this project’s sample (Saltuk, Bouri, Mudaliar, Pease,
or prospective work with social metrics, it is very
2013). As a result, many of the most current best
likely that they were disproportionately well-versed in
practices, lessons, and recommendations will come
social metrics relative to other investors. Even though
from an international context, and may not have been
this report was intentionally targeting this segment,
tested in Canada yet. Our team has incorporated
it may result in the perception of higher clarity and
examples from across the globe into our deliverables,
sophistication of social metrics than is representa-
but note that many practices have yet to be adapted
tive of a broader range of investors. As such, we
for use in Canada.

1 For definitions used, please see Appendix A: Questionnaire


4.0 Results A key distinction must be made between the motiva-
tions of financial-first and impact-first investors.
“Financial first investors seek to optimize financial
This section presents the key findings from key infor-
returns, with a minimum requirement for social
mant interviews and literature review. It is divided in
or environmental impact. They are generally com-
the following ways:
mercial investors searching for subsectors that offer
• Section 4.1 explores who impact investors are; a market rate of return but yield some social good”
• Section 4.2 outlines why social metrics matter (Thornley and Dailey, 2010). Banks, pension funds,
to them; and development finance funds tend to be classified
• Section 4.3 presents the measurement principles, as finance-first (E.T. Jackson and Associates, 2012).
tools and approaches used; “Impact-first investors seek to optimize social or
• Section 4.4 discusses the stages of the investment environmental performance while maintaining a floor
process when investors use metrics; for financial returns. They accept a range of returns,
• Section 4.5 discusses the challenges of measure- from principal-only to market rate, and seek social
ment; and, good as a primary objective” (Thornley et al., 2010).
• Section 4.6 outlines the competing priorities Foundations, family offices and impact investing funds
investors face. tend to be classified as impact-first (E.T. Jackson and
Associates, 2012). Most investors have both financial
Readers are cautioned that the findings from key and impact goals that they seek to balance through
informant interviews should be considered anecdotal their investment decisions.
as the project’s sample size does not justify any broad
conclusions about the perspectives of Canadian Most investors have both financial and
impact investors as a whole. impact goals that they seek to balance
through their investment decisions.
4.1 Who are Impact Investors? Of the key informants, four identified as finance-
first investors, eleven identified as impact first
As in the traditional investment universe, impact
investors and six identified as balancing impact and
investors vary in the nature of their motivations,
finance goals.
assets, risk and return expectations, and social
impact objectives. In this section, the different types While not the focus of this report, it should be noted
of impact investors are presented. that ventures themselves also engage in impact mea-
surement. Ventures use measurement “to determine
if they are making a difference, to market to custom-
Characteristics of Finance First and Impact ers/stakeholders, to secure or maintain funding and
First Investors to improve the services or products they deliver and
their organizational processes” (Golden, Hewitt and
Finance First Impact First McBane, 2010).
- Seek to optimize - Seek to optimize social
financial returns or environmental impact

- Minimum requirement - Minimum requirement
for social or environmen- for financial returns
tal impact

E.g. Banks, pension funds E.g. Foundations, family
offices, impact invest-
ing funds


4.2 Why Metrics Matter reflected in the “proliferation of nonfinancial perfor-
mance measurement tools and practices” (Thornley
Investors use social impact metrics for a variety et al., 2010).
of purposes. The way investors use metrics differs
At the field level, social metrics are essential to
substantially based on the purpose for which they are
support the development of social finance tools and
using them. “For some impact investing actors, social
investment vehicles (Wisener and Anderson, 2010)
measurement is important to prove impact. Others
and to attract capital (Golden et al., 2010; Thornley et
believe that improving the nature of the venture
al., 2010).
should be the priority of assessment” (E.T. Jackson
and Associates, 2012). As Thornley and Dailey (2010) As will be discussed in the following sections, key
suggest, “understanding investor preferences and informants indicated that they use metrics in many
behaviors is critical to more effectively measuring different ways for many different purposes through-
performance.” In this section, the importance of out the investment lifecycle.
metrics to different types of investors is explored.

While “impact-first funders … will generally require
more sophisticated social or environmental measure-
4.3 Measurement Principles,
ment tools to really quantify the degree of impact Approaches and Tools
from their funding … Investors seeking blended
There is no silver bullet when it comes to social
financial and social/ environmental impact returns
impact metrics. Indeed as E.T. Jackson and Associates
will generally use outcome measures that are defined
(2012) point out “…the ongoing market-building
by a social purpose business, specific to its social
phase of impact investing will likely continue to be
mission and its execution plan, in reporting to their
characterized by numerous impact assessment initia-
investors” (Golden et al., 2010). According to Golden
tives operating in parallel, sometimes in conflict and
et al. (2010), “investors who are primarily motivated
sometimes in cooperation.” Current literature urges
by financial returns or investment-first investors in
interested parties to shift to an “investor-centered
the social capital market require impact measure-
perspective [rather than using] particular metrics
ments that are simple and easy for the average
as the focal point of innovation … a more complete
investor to understand.”
understanding of investor preferences will lead to a
These different ends mean that investors use metrics more robust regime of measurement” (Thornley et
in different ways. “Each investor – be it a bank, a al., 2010).
public sector pension fund, an insurance company, a
The “right” approach to measurement, it follows,
foundation, or a faith-based organization – places a
is defined by an investors’ risk tolerance, desired
different value on nonfinancial return. Further, their
financial return, sector of investment, geography, and
investments in different sectors reflect their various
the quality of information the investor requires (Olsen
missions and visions (such as investments in job
and Galimidi, 2008). In this section, the different
creation, support for emerging domestic markets,
principles, approaches and tools investors use in
or construction of affordable housing). These dif-
measurement are explored.
ferences are a significant barrier to any attempt to
distill the interests, preferences, and aspirations of
all investors into a single industry-wide nonfinancial
performance measurement practice” (Thornley et
al., 2010). The diversity of investor preferences is


4.3.1 Metrics Types and account for the differences in impact, region,
size, and focus of each of their investments. For
Investors have a variety of factors to consider when
example, an investor at a private investment fund
deciding what types of metrics to use. While they
focused on sustainable agriculture said, “Our com-
may prefer to measure outcomes and impacts,
panies are so diverse that we need to measure at the
they may opt to primarily use output metrics and
investment level to capture their non-financial value.”
to use outcomes and impact metrics only where
strictly necessary. A few key informants measure metrics at the portfolio
level. This level of measurement allows investors to
While informants favour outcome and capture the impact of all of their investing activities,
impact measurements, very few are able rather than just that of one investment. To do so,
to collect this information. they identify a set of core indicators that are common
to each of their investments. One metrics service
All of the informants who collect social metrics provider justified this decision by saying, “While there
indicated that outputs are the easiest to collect and is variation among industries, there is some com-
standardize. As one service provider said, “Many monality between all of the companies in our universe
companies coming into this field may not have that we can report on at the portfolio level.”
thought about measurement before. They may never
have measured outcomes. We need to make metrics Less than half of informants monitor metrics at
credible, accessible and verifiable but it is unrealistic both the portfolio and individual levels, due to the
to expect companies to jump into outcome measure- challenge of capturing the sector-specific nature of
ment right away.” impacts at the portfolio level. As one investor said,
“Each of our companies is too diverse. Measurements
Investors want to get beyond outputs but outcomes at the portfolio level wouldn’t have any real value.” In
are proving to be a difficult hurdle to tackle. As one this manner, an investor chooses a scale of analysis
foundation program officer said, “I’m starting to which reflects his or her priorities and focus areas.
think that I don’t even want to focus on outcomes.
We should talk about it and be aware at the theory
of change level but not at the measurement level. It’s 4.3.3 Principles, Approaches and Tools
complex and even if you find an appropriate metric,
Key informants were asked what principles,
there is so much analysis and work that needs to go
approaches and tools they use in their measure-
into proving that a certain percentage of the outcome
ment. Informants noted that their approaches vary
is related to my intervention.” This approach is
by investment, by sector, by size and by asset class.
reflected in some of the major measurement initia-
The following table summarizes their feedback on
tives, such as GIIRS and IRIS, which only reflect out-
the strengths and weaknesses of each framework. A
put metrics. Moving forward, investors may choose to
more thorough analysis of measurement frameworks
adopt outcome metrics where they are strategically
is included in Appendix B. One of the most common
advantageous, rather than aim to measure these indi-
frameworks used by is GIIRS. A sample GIIRS assess-
cators across the board. For example, if an outcome
ment is included in Appendix C.
metric is essential to securing funding, customers or
community support for a venture. Where outcome
metrics are resource-intensive or not essential to a
venture’s success, investors expressed a preference to
work with output data that is easier to obtain.

4.3.2 Scale of Analysis
Key informants differ on the scale of analysis they
use when monitoring social metrics – ranging from
the investment level, to the portfolio level, to both.
At the investment level, metrics are collected only as
they pertain to an investment in a single venture. At
the portfolio level, metrics are collected from all of an
investor’s investments to capture the overall impact
of an investor’s activities.

Most informants were able to monitor metrics at the
investment level. This scale allows them to recognize


Table 1: Measurement Frameworks used by Key Informants1

TOOL DESCRIPTION USED BY USED FOR LIMITATIONS

Theory A map that describes the • Foundations • Clarifying • Captures only
of Change “process of planned social social objectives anecdotal evidence
• Non-profit
change, from the assump-
Investment Funds • Determining appro-
tions that guide its design to
priate metrics
the long-term goals it seeks • Ventures
to achieve” (Community • Identifying long
Foundations of Canada, term direction of
2012). Its focus is on activities an organization
and outputs.

GIIRS GIIRS Ratings & Analytics • Ventures • Benchmarking • Not suitable
represents a set of third-party with other invest- for non-profits
• Investment Funds
assessments of the social and ment opportunities
• Long survey
environmental impact of both
• Improving transpar-
companies and funds. GIIRS
ency
assesses companies as well as
funds and their portfolio com- • Improve a ven-
panies on four performance ture’s operations
areas: governance, workers,
community and environment

IRIS provides a standardized • Investment Funds • Increasing compa- • Doesn’t measure
IRIS taxonomy and a set of con- rability outcomes
sistent definitions for social, or impact
• Increasing standard-
environmental and financial
ization • Not applicable to
performance. IRIS is intended to
projects outside
co-exist with the Global Impact
the Global South
Investing Rating System, in order
to provide a common language
for output indicators.

ESG ESG Screens are environmental, • Consultants • As a proxy for sus- • Doesn’t measure
Screens social and governance criteria tainable management outputs, outcome
which are used to filter out • Pension Funds or impact
• Suited to a socially
companies and sectors that are
responsible investing
considered harmful to people,
(SRI) approach
communities and the environ-
ment from an investor’s portfolio
or to include companies with
leading environmental, social
and governance track records.

1 This table is intended to capture the comments of key informants on specific measurement frameworks. It is not intended to be
representative of the entire sector’s perspective on these frameworks.


Social Return A set of guidelines for the • Chartered Banks • High level analysis • Labour intensive
on Investment measurement of non-financial
• Filtering invest- • Aggregated figures
(SROI) impact per investment. SROI
ment opportunities mask assumptions
involves the calculation
and errors
of “social cash flows” for
outcomes describable in • Difficult to access
monetary terms, and a net geographically
present value calculation of appropriate
these to arrive at a return on proxy information
investment (ROI) ratio.
• Difficult to
prove attribution

Cost Benefit An analysis in which the • Government • Payment by • Doesn’t capture
Analysis costs and social impacts of results contracts any indirect non-
an investment are expressed financial impacts
in monetary terms and then
assessed according to net
present value, the benefit-
cost ratio or the internal rate
of return.

Sustainable Sustainable Livelihoods is • Non-Profit • Capturing the • Not easily
Livelihoods an asset mapping process Investment Funds complexity of comparable
which measures the specific employment issues
financial, social, personal,
physical and human assets
an individual or community
may have. The framework
then helps to identify
what assets must be built
through the intervention and
re-assess these assets to
measure progress towards
poverty reduction.

Case Studies A description of the • Investment Funds • Communicating • Not a precise
inputs, activities, outputs, to stakeholders measure of impact
outcomes and impacts of
• Conveying impact in
an intervention.
a simple way

• Capturing broader
community
level impact


4.3.4 Limitations standards. Others fear that increased standardization
of metrics would result in a “cookie cutter” approach
Investors are keenly aware of the limitations and
of minimal utility.
challenges of existing measurement frameworks.
These include comparability, standardization,
and cumbersomeness.
4.3.4.2 Other Limitations
With regards to existing measurement frameworks,
4.3.4.1 Comparability and Standardization investors find many of these tools cumbersome. As
one investor put it, “We have yet to see something
Amongst investors, there is a desire for comparability
broad enough and smartly enough designed to take
and consistency in measurement. “In business, we
the end result seriously.”
have established generally accepted principles of
accounting and an international legal infrastructure As one foundation program officer identified, “There
to help manage the reporting of financial returns. A is a misperception that there is one number that we
comparable standard for social impact accounting can use for every activity we do that would be slightly
does not yet exist” (Clark et al., 2004). Confusion adapted depending on context. This is impossible.”
exists around the language used by different actors
This challenge can be alleviated to a certain degree
in the field of impact investing (Clark et al., 2004;
through greater education around the uses and
Thornley et al., 2004) as well as the vastly different
limitations of measurement.
measurement systems required to reflect the impact
potential of a diversity of products and investment
opportunities (Thornley et al., 2010).
4.4 When Investors Use
More than half of key informants indicated that they,
or their ventures on their behalf, use a customized/
Social Metrics
proprietary measurement system. Investors choose to Investors use metrics at different times and for differ-
use customized measurement approaches for several ent purposes throughout the investment lifecycle. In
reasons. First, as stated earlier, investor preferences this section, we explore the stages of the investment
differ significantly meaning that they may seek to lifecycle and how metrics are used at each stage.
measure very different indicators than their peers.
Most key informants felt that existing standardized
metrics frameworks do not meet their needs, due to 4.4.1 Value Definition
the nature and diversity of their investments. As one
By definition, an impact investor’s investment deci-
investor put it, “We are supportive of the idea [of a
sions are guided by an intention to have a positive
social metrics framework] but have not seen anything
social or environmental impact. In order to make
that makes sense for us.” Many of the informants
investment decisions that fit their values, investors
indicated that they are currently in the process of
must first clarify their social and environmental
developing or improving their measurement frame-
impact objectives, the factors and stakeholders that
work. As investors develop track records and experi-
influence these objectives, and the possible avenues
ence in the field, they will continue to adapt their
for achieving these objectives.
tools and approaches.
One tool that is commonly used by investors during
Customization has resulted in a diversity of measure-
this phase is a theory of change. A theory of change
ment methods which have contributed to investor
is a map that describes the “process of planned
confusion in the field of measurement. According
social change, from the assumptions that guide its
to Thornley and Dailey (2010), “investors feel
design to the long-term goals it seeks to achieve”
overwhelmed or misinformed by the lack of con-
(Community Foundations of Canada, 2012). It explains
sensus around what constitutes a robust or action-
how stakeholders and their actions can influence a
able methodology.”
system to produce a set of short term and long-term
In the face of this challenge, investors differ on the results. In addition to clarifying how activities lead to
proper course of action. Some view this lack of com- outputs and outcomes, a theory of change articulates
parability as a shortcoming of existing metricsframe- assumptions about the process through which change
works and see the need for adoption of measurement will occur.
standards. These investors identified the need to first
As impact investors are intentionally trying to gener-
build agreement on the importance of metrics before
ate impact with their investments, a theory of change
the sector can coalesce around a common set of
can be useful in describing the various inputs that go
into an investment and how they interact to deliver


financial and social returns. Some investors use a 4.4.2 Due Diligence
theory of change as a first step in understanding the
While traditional investors try to manage risk and
vision, aims and motivations that influence invest-
return as they construct their portfolio, impact inves-
ment decision making and therefore, the indicators
tors build on this framework by incorporating impact
that they will want to measure.
as a consideration. Most key informants use social
While the literature suggests a strong role for impact metrics in the due diligence or investment
theories of change in the investment process, our key screening phase, though these metrics are used in
informants lacked consensus on its value. Of our key different ways depending on the type of investor. For
informants, half had developed a theory of change. example, institutional investors tend to use metrics to
Most of these individuals were from foundations and screen out unwanted sectors or organizations, reduce
non-profit investment funds. These individuals said risk and capture long-term value. Investors making
that the theory of change had helped to clarify the direct investments tend to use social metrics to vet
high impact opportunities and identify alignment with
investment parameters.

Investment Lifecycle

Ongoing
Value Definition Due Diligence Monitoring Reporting
Measurement

Example Measurement Example Metric: Example Metric: Example Metric: Example Metric:
Framework: Theory Number of jobs Employee retention Increases in family Increases in family
of Change created income assets

goals of their investments, to shape the long-term Risk reduction is a key role for metrics in the due
trajectory of their organization and to achieve buy-in diligence phase. Metrics can be used to identify
from partners. potentially risky investments and by extension to limit
an investors’ exposure. For institutional investors, the
Financial-first investors, such as those representing
risk screening process is commonly achieved through
investment funds, chartered banks, high net worth
the use of environmental, social and governance (ESG)
individuals and government, were less likely to have
screens which are used to eliminate investors or sec-
developed a theory of change. These individuals
tors whose poor performance in such indicators may
identified theories of change as being imprecise,
be indicative of risks to financial returns.
not very pragmatic or not suitable for their purpose.
Instead, these investors tend to express their values Impact investors also take on a social risk – that of
through an investment thesis – a statement of beliefs not achieving their desired social objectives. Investors
that guides their decisions throughout the invest- who have a lower bar for social due diligence may be
ment lifecycle. willing to take on more risk by investing in ventures
whose impact has not been fully captured. Conversely,
investors who are looking to reduce their social risk
may use a more formal measurement system, such as
GIIRS or IRIS.

Metrics can also help investors to capture the long-
term value inherent in many impact investments. E.T.
Jackson and Associates (2012) notes “many investors
are recognizing the limitations of their financial
return models when they fail to take into account
longer-term drivers of economic and societal value
creation. Instead, the impact-motivated practices of
these investments can be seen to deliver long-term
value, rendering this a source of strength, rather
than of vulnerability. This also applies to institutional
capital whose trustees and managers are under


increasing pressure to take a long-term, multi-faceted Investors noted that their due diligence requirements
view in their investment decisions.” Consequently, differ by sector, though they regularly have a mix of
these investors use social metrics to ensure that this quantitative and qualitative metrics. Some commonly
value is captured in their decision-making, often by mentioned sector-specific metrics have been included
integrating ESG factors into their analysis (Roy, 2012). in Table 2.

Key impact metrics allow investors to “screen While many investors favour quantitative data, several
potential investments to make sure they fit with their investors noted the importance of qualitative factors
investment focus and expertise. Impact metrics are in their decision making. These “intangible metrics”
used at this early stage of engagement to ensure the signify a good impact investment but can’t necessar-
fit exists” (Golden et al., 2010). ily be quantified. Even as the field of measurement
develops, these factors are likely to continue be
Many of the key informants had strongly defined
measurable only in qualitative form. For example, a
investment themes or parameters, such as the social
compelling concept or narrative of social impact has
economy, clean tech, and environmental consumer
huge value for many investors, particularly high net
products. All of the key informants identified the
worth individuals and venture capital funds. As one
importance of fit with these parameters as a key cri-
high net worth investor said, “I only select companies
terion for the selection of an investment opportunity.
where the meaningful impact is an obvious part of
Metrics are useful in helping an investor to determine
their commercial offering. It’s so obvious that you
the extent to which a particular investment helps
don’t have to measure it.” Another example is the
them to achieve an identified social or environmental
quality of the entrepreneur, often a key factor in
impact priority.
investment decision making yet difficult to quantify.
Return In many cases, investors are investing as much in
the entrepreneur as they are in the investment itself.
Investors assess this factor through relationship
development, experience and trustworthiness. One
investor compared the impact investing market to old
style bank loans - based on networks, relationships
and trust.

In other circumstances, the use or lack of use of
social metrics can make or break an investment
decision at the due diligence phase. Many key
informants had previously chosen not to invest in an
organization because it was unable to prove its social
Impact Risk impact. For example, a representative of a private
equity investment fund said, “We have turned down
Source: Saltuk, Y. (2012) A Portfolio Approach to Impact
Investment. JP Morgan Globla Social Finance Research.
numerous promising opportunities, even going to the
Available at http://www.jpmorganchase.com/corporate/social- length of doing an on-site (and costly) due diligence
finance/publications.htm trip and killing the deal because we weren’t convinced
Metrics are useful in helping an the fund manager understood the importance of ESG
value add.” Consequently, for investors with defined
investor to determine the extent to impact objectives, metrics are an inherent part of the
which a particular investment helps evaluation of investment options.
them to achieve an identified social or While key informants take the social impact of
environmental impact priority. their investments seriously, they also stressed the
Investors vary in the formats in which they request importance of being flexible, particularly for early
due diligence from ventures. These include impact stage ventures that have not yet developed a track
reports, case studies, theories of change, and IRIS record. Informants felt that flexibility in the standard
compliant impact data and outputs. Sometimes, this of measurement was important to ensure that these
data is inputted into a - quantitative rating system, ventures were able to get off the ground. In the early
such as GIIRS, to allow for comparability between stages of a company, investors were willing trade
investment opportunities. Investors are very mindful certainty in social metrics for long term financial
of the time and resource costs of data collection and performance. This approach tends to shift as ventures
are therefore supportive of creating synergies by mature and are better positioned to capture their
using metrics already collected by a venture or which
are easy for a venture to collect.


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