December 20, 2014

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How Do You Measure the Bottom Line for Impact Investing?

We try to challenge ourselves every year...but the benefits of a simple metric are clear.

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By Seth Goldman, President and TeaEO of Honest Tea

Since 1993, when I was at the Yale School of Management, to my work with the Calvert Funds and Foundation and now with my company Honest Tea, I’ve been a part of hundreds of discussions and debates about how to evaluate the return on an impact investment.   

Centuries of academic work and millions of billable hours have been dedicated to refining the metrics of financial investments so that investors have a clear picture of their return. But those of us in the social investment space continue to navigate in far murkier waters.

The bottom line is that the bottom line for impact investing is harder to understand.

For example, if I want to invest in a low-income housing development or an organic food company there are a number of questions I might want to consider;

  • If I only recover my initial capital, was that a mediocre investment? 
  • How do I quantify the positive impact of fellow citizens benefiting from home ownership, not to mention the affiliated job creation? 
  • What is the proper way to calculate the internal rate of return for the environment, the consumer or the field worker when our choice to support organic agriculture helps reduce the use of chemical pesticides?

Way Too Many Metrics

At Honest Tea, we’ve pondered many different metrics when trying to quantify the impact of our mission driven business, including;

  • The reduced calories for each bottle, can or drink pouch we sell
  • The increase in organic acreage fueled by our expanded demand, which helps support a less chemical-intensive approach to agriculture
  • The community investment dollars that we are able to generate with our Fair Trade premiums, such as support for schools, ambulances or eye care for villagers in a tea garden
  • The influencer/ripple effects of our success, when we create pressure for competitors to expand their low/no-calorie or organic options

But instead we keep it simple – we evaluate the impact of our mission by counting the number of bottles we sell. 

Keeping it Simple

When we are able to infuse our mission into our bottles by selling lower calorie, organic and Fair Trade certified beverages, we are able to align the impact of our business with the growth of our business. Put honest teasimply, more bottles sold means more impact.

For the past 16 years we have been on a journey to further infuse our mission into our bottles.  We started by selling drinks with 17 calories per 8 ounce serving. In 2004, we converted all of our teas and juice drinks to organic certification, and in 2011 gained Fair Trade certification for all of our tea beverages. 

Being transparent about our progress, or lack thereof, is important.

Every year our Director of Mission publishes an annual Mission Report – examining everything from life cycle analyses of our packages to the efficacy of our Fair Trade investments. And although every year we challenge ourselves to find additional ways for continual improvement, counting bottles is much simpler. 

The benefits of a simple metric are clear; every day employees in our company can tabulate and understand their collective impact – and equally important, their incentives are directly aligned with that impact. And even if an employee doesn’t care about the mission, and is only worried about hitting a sales goal, the impact still happens: 930,601,802 bottles (from inception) and counting.

About the Author:

Seth Goldman is co-founder & TeaEO of Honest Tea. He is currently a member of the National Advisory Board to the Social Investing Task Force and will be speaking at the Social Enterprise Alliance conference later this month at Vanderbilt.

Related:

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The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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