Evaluation and Impact Investing: A Review of Methodologies to Assess Social Impact

Abstract

This report highlights the paradox within impact investing: the prioritisation of ‘social impact’ without prioritising ‘impact evidence’. The growth of metrics, ratings and certification-based approaches has sought to address this gap but this only goes so far, and there is a need for a more evaluative approach to assessing impact. Drawing on the field of development evaluation, the report sets out five criteria for a ‘more evaluative’ way of assessing impact (impact, differential impact, plausible causality, aggregation, and accountability). The report then reviews a subset of more than 100 resources against these criteria and concludes that while there are some promising methods, each has different strengths and limitations in providing a more robust assessment of impact. As such, the report warns that trade-offs need to be carefully considered, for instance between different methods that provide greater standardisation versus those that provide greater specificity – and the cost/benefit trade-offs for investors in using each approach. Furthermore, just one method is unlikely to be sufficient by itself and there is a need for more guidance, innovation and learning for investors on methodological choices and how best to combine and complement different approaches for assessing impact in a cost-effective manner. Without such innovations it will become harder for impact investors to differentiate themselves from the more orthodox investment industry.