Oranges & Lemons, an Investing for Good report on the state of play of impact measurement practices among social investment finance intermediaries

Orange and Lemons report

The report by Investing for Good details how 10 UK leading social investors are incorporate social impact in screening and assessing investments as well as how transactions are priced and structured and investment decisions made.  It also provides a useful overview of the current state of impact measurement practices in the social finance sector and the practical challenges that investors are facing.  There was variance amongst the approaches taken by the 10 investors with some taking a “system-driven” approach and other's a less formal one; reliant on discussions, narratives and and deep understanding of the risks in the market.  

The report has three key, unique findings.  The first of which is that this is a very young discipline.  Whilst this is true for impact measurement generally, it is particularly true in the social investment field, where the complex interplay of impact, investment return and risk is only slowly being understood.    

Secondly, it found that different approaches to impact are being used for different investor motivations, investment types and investment structures.  Current guidelines and best practice methodologies do not make this distinction. Finally, the research found that this is largely a self-imposed discipline in that neither internal operations or governance, nor external reporting obligations, were actively demanding more or more systematised information on impact performance. 

The report warns that, in the absence of any agreed principles and standards, the danger moving forwards is that the wrong type or poor quality and misleading information is collected and results either in ‘impact datawash’ or lack of confidence in social investment as a vehicle for delivering real social benefit.  It therefore makes two recommendations:

  • The first is to draw up guidelines regarding what approaches to impact may be most appropriate for investments of different types, purposes, and lengths of term and also different investor motivations; acknowledging that these will not always be the same. 
  • The second is to establish a peer reviewing group of investors to read and provide active feedback on each other’s impact reports, and to bounce strategies off each other regarding impact accounting. 

Both Big Society Capital and the Esmée Fairbairn Foundation, as funders of the research,  are committed to ensuring that social impact assessment and understanding are at the core of a new style of investment discipline.

Big Society Capital is committed to continuing to support this work. We will be setting up a forum to share peer-to-peer learning among social investors in response to the findings of this report. We hope this will help to improve and evolve the practice of embedding mission and impact into all aspects of the investment process.
— Marcus Hulme, Social Impact Director, Big Society Capital
Our experience as a social investor over the last 8 years has taught us how critical social considerations are in creating and managing a successful portfolio for social change. But it still early days and we believe that better learning, evidence and transparency will help both investors and social sector organisations understand which social investment approaches and products work best. Collectively, we hold the keys to ultimately fulfil the purpose of social investment; which to use investment as a means for positive and lasting change in society.
— Caroline Mason, Chief Executive, Esmée Fairbairn Foundation.
Introducing social impact into the traditional investment process is only just beginning to be understood in practice. Our experience working with both frontline organisations and social investors, and from undertaking this research, shows us that there is a huge opportunity to build on this early work and establish social investment as a discipline that can help not only the social sector but the investment sector at large.
— Geoff Burnand, Chief Executive, Investing for Good.

 

Click here  to view the full report.