Acquiring accurate impact data to support impact investments does not have to mean swamping the often-limited resources of intermediary and beneficiary organisations with complex data requests, according to Oxford University researchers.
Are the ever-expanding demands being placed on developing world investors and the companies in which they invest, to produce impact measurement data doing more harm than good, and what can be done to alleviate those pressures? These are among the key questions tackled in a new report produced by Oxford University (OU) researchers.
The working paper, ‘No Data, No Deal?: Impact Measurement and Capital Flows to Achieve Climate-Compatible Growth’, was produced by OU’s Smith School of Enterprise and the Environment (SSEE). Support came from the Climate Compatible Growth programme, which is funded by the Foreign, Commonwealth and Development Office, the UK’s foreign ministry.
In the paper, researchers Alex Money and George Carew-Jones argue that the costs of implementing impact measurement and management (IMM) requirements risk making life worse rather than better for some businesses and projects in emerging markets required to report on progress towards impact goals as a condition of investment. SMEs with limited financial and human resources operating in countries where little data on environmental and social metrics exist are particularly vulnerable – their staff routinely complain of feeling swamped by requests from investors for data that is not easily attainable.
At worst, a company capable of making worthwhile impact could be excluded from receiving investment altogether if it is unable to show that it can provide enough of the sort of impact data demanded by investors such as development finance institutions seeking to justify their allocations to blended finance initiatives.
This risks entrenching existing inequalities by depriving some businesses of finance altogether. The situation can also leave investment managers stuck in the middle, struggling to balance competing demands over impact data between data-hungry investors on one side and beneficiary companies struggling to provide it on the other.
Carew-Jones, a research assistant in climate compatible growth at SSEE, said that while high-quality IMM was crucial to generating impact investment and avoiding impact washing, a nuanced approach was needed.
“One reason why this money is struggling to flow down to beneficiaries that need it, is that the increasingly stringent requirements on data collection are very difficult to deploy in emerging market contexts because there’s such a lack of data there,” he told Impact Investor.
One way of reducing this burden is for investors to be less demanding about what they expect some investee companies to report on – for example by simplifying requirements for carbon emissions reporting, which can be hard to fulfil in many developing countries. This is an approach already on the radar for many in the impact investment sector.
Another is to focus on measuring types of impact more relevant to the places in which companies operate, such as agriculture, tourism, green energy supply, rather than seeking to quantify progress with less relevant areas of impact.
Government role
Linked to that, the researchers also make the case for wider sharing of data held by government and other public bodies in developing countries that would be of use to impact investors, and for governments to proactively encourage the collection and dissemination of impact data, with support from international institutions where necessary.
The paper looks, in particular, at Zambia, one of the world’s poorest countries, where the publicly-funded $200m (€181m) Constituency Development Fund (CDF ) is the government’s flagship programme for impactful community development. The authors say the fund’s emphasis on devolving impact assessment away from central government to local authorities that have better local knowledge allows for more tailored targeting of investment.
“By doing that, you’re democratising the process more, and you are also better able to align investment with what people are most likely to need,” Alex Money, director of the innovative infrastructure investment programme at SSEE, said.
Governments are seen as a potentially effective source of impact data at relatively low cost and scale, given they already have the embedded assets.
“There’s a whole range of data that governments collect on, for example, improved education outcomes, welfare outcomes and health outcomes, that may not be hypothecated to a specific project but can still provide an evidential base of what happens from an intervention in terms of impact,” he said.
The paper argues that organisations like the CDF could act as ‘aggregators’ of impactful, community-led growth projects worthy of further investment, which could be made available via online databases – information which would be difficult and costly for foreign impact investors to gather themselves.
They also note that the falling cost of digital technology, the development of AI and easier access to data from satellites, drones and other sensors makes remote project monitoring and reporting possible in a way that was impossible until recently. This provides another avenue for investors and project sponsors to assess impact without burdening beneficiaries of investment with the task.
Standard development
In the case of the CDF, the authors say the creation of an effective monitoring and evaluation system is urgently needed to demonstrate the fund’s impact. More broadly, they say early action is required to set the boundaries of, and principles for, impact standard development and that investment in impact measurement education, including workshops and accelerator programmes, would help leverage private capital.
Following on from this, they say that work on the principles governing impact investment needs to be shared more widely within the investor community.
While some public and private sector organisations are making efforts to do so, more could be done, according to the authors. “There are some pretty good frameworks for measuring impact out there, but they are not routinely socialised by everyone. There are new entrants to impact investing, who may not be leveraging existing best practice. Our call is for people to actually look at what’s available without reinventing the wheel,” said Money.
