Until recently, it seems that meaningful evidence of impact has eluded impact investors.
By Kai Hopkins, Finance and Operations Manager, Keystone Accountability
Social purpose organizations – in their many forms – have worked hard to shed the impression that they are well meaning but inefficient, lacking the drive and ability to assess and understand their impact.
And you would be forgiven for assuming that the emerging field of Impact Investment, with its roots in business – an area we in the charity sector are so often told to look at for guidance on using concrete facts and figures for improvement – is leading the way in understanding its own impact.
What Investees Think
Until recently, however, it seems that meaningful evidence of impact has eluded impact investors. This was a main finding of Keystone’s What Investees Think survey. Investees reported not really knowing their impact, which in turn suggests investors are also in the dark.
The survey was conducted in 2010 with 330 investees providing anonymous feedback on seven leading impact investors. The result is the recently published report What Investees Think.
Their feedback is frank, accurate and – as participating investors all testify – can prove effective in driving improvement. Creating an authentic and constructive discourse about the investor-investee relationship in this emerging field needs investee feedback, not just industry-agreed standards and external rating systems.
The report also contains the anonymized data findings from the survey and:
- Identifies a significant opportunity to redress the gap in existing measurement, reporting and rating tools with systematic investee feedback,
- Highlights areas of strength and areas in need of improvement, and
- Provides a powerful understanding of what effective impact investment looks like from the position of investees.
- Survey respondents report that they have no idea what investors do with the reports that they prepare for them.
- Investors do not provide sufficient resources or expertise to enable them to meet their reporting requirements.
- The weakest areas have to do with value adding through non-financial support and transparency, while the strongest areas are investor’s technical competence, efficiency and credibility.
- While investees indicate inadequacies in current non-financial support, they also express a strong demand for it.
- Across the board, respondents allege that impact investors would benefit from being more proactive in soliciting advice and guidance from their investees.
The survey focused on answering six key questions for the investors:
1. Efficiency: How efficient are your operations?
The answers here varied widely across participating funds, ranging from unacceptable to adequate. This is clearly an area where investors can and should improve. For some questions the difference between investors was over 100 percent.
2. Net Value: What value do you add to investees beyond investment capital?
Investors do not add as much value beyond capital as they could. When asked whether they agreed that non-financial support received resulted in significant improvements in their performance, 46 percent of investees did not agree with only 13 percent strongly agreeing.
3. Learning: How well do you enable learning and improvement by investees?
This index considers the openness and flow of communications and the learning realized while engaging in monitoring and evaluation tasks, and is an area where investors are performing well. Ninety-three percent of investees feel the frequency is just right, while only 15 percent disagree that M&E requirements help improve learning.
4. Credibility: How are you seen in terms of peer standing, responsiveness and professionalism?
This index compared the investor to investee experience of others, and on the whole, all the investors performed well. This tends to support the hypothesis that the participating impact investors are all high performers. In seven out of the eight areas rated, the investors in the survey were scored more favorably than other investors. The one area for which this was not the case was non-financial support, with 64 percent preferring other investors.
5. Transparency: How open and complete are you in its communications with investees?
Investors are not as open and complete in their communications with their investees as they should be, the report reveals. Some of the lowest scores in the survey, in fact, were for the thoughtfulness of investor responses to reports provided by investees. On average, investees scored 6.1 out of 10 for thoughtfulness of their response and 5.3 out of 10 for how well they understand what investors do with their reports.
6. Net Effectiveness: Overall, how effective are you at enabling investee success?
The focus here was about investor-added value to the investee business – eliciting a wide variation in scores from the investors. Even within this band of high performers, the data suggests there is considerable room for improvement.
It appears that merely having the right intent is not enough. If you are looking to improve performance, you need to have honest investee feedback benchmarked against others’ – and now you can. Keystone is repeating the process and the Impact Investment Survey 2013 is now open to subscription.
Register by the end of May and you will have your benchmarked investee feedback by the end of August.
About the Author:
Kai Hopkins is the Finance and Operations Manager at Keystone Accountability. Kai has worked in non-profit management for seven years, guiding several organisations through periods of expansion. Kai joined Keystone after three years as General Manager at Alliance magazine, the leading publication on international philanthropy and social investment.