The SDGs as a reference framework for measuring impact

Measuring the impact of the SDGs is an evolving area. The challenge is to navigate without getting lost within the various existing methodologies.
Véronique Veyrassat

Impact funds have complex stories to tell

Impact funds that balance profitability and social/environmental impact have more complex stories to tell than traditional funds.

Many articles, documents and methodologies exist on management and measurement of impact for investment funds. However, management and measurement of impact related more specifically to the SDGs (Sustainable Development Goals) is still in its infancy.

The questions therefore are :

  • How to integrate in an investement process the management and measurement of the impact related to the SDGs?
  • How to identify and synthetize the right documents and tools?
  • How to formulate a proprietary and tailor-made SDG impact management strategy?

In order to develop a SDG impact management framework for an existing or developing fund, we base our approach on the main steps as proposed by EVPA’s Practical Guide for measuring and managing impact. Then, we integrate elements related to SDGs from recent approaches, as well as our know-how and experience.

Impact is measured at two levels : at the investment fund level and how it contributes to the impact, and at the investee level. The objective is to align the impact between the fund and its investments.

The starting point of our approach is to identify the social or environmental  investment objectives of a particular fund and its investments. Then, we validate these objectives with internal and external stakeholders. Finally, we allocate impact indicators and develop an impact monitoring, verification and reporting system.

1. What are the social/environmental objectives

What is the social/environmental problem that the fund aims to address

The initial point of our analysis at the fund and investee levels is always the Impact Value Chain as developed below.

At fund level: Fund managers must have a clear vision of the fund’s social, environmental objectives and expected impact.

The following questions should therefore be asked: What market need will a fund serve? What is the evidence that these needs exist and what is their extent? What is the social/environmental problem the fund aims to address? What are the related objectives and what are the expected results?

General questions are also raised such as the motivation for measuring the impact, the resources available, the type of companies in which the fund will invest, the time horizon of the investment.

At the level of investees: Issues related to the Impact Value Chain are raised, such as the social problem addressed, resources and activities planned and expected results.

The more specific the investment objectives are, the more precise the measurement of impact.

Impact Value Chain

The Impact Value Chain (or theory of change) demonstrates the link between:

  • Inputs – financial or human such as $ invested, number of people,
  • Activities – concrete actions undertaken such as purchased land and built schools,
  • Outputs – which are tangible such as a new school with a certain number of places,
  • Outcomes – in terms of broader change such as the number of students that now have access to education and finally,
  • Long-term Impact – which does not include in our example students affected by similar existing programs.

Impact Value Chain
The Impact Value Chain is developed at the fund and investee levels and must make sense in an integrated way.

In order to measure impact, which is the most difficult element to measure, we must adjust the results to what would have happened anyway (deadweight), to the actions of other intervening organisations (attribution), to the fact that the results of an intervention generally decrease over time (drop off), to the fact that an intervention can potentially be moved to another context and have additional results (displacement).

2. What are stakeholders' impact priorities

The identification and engagement with stakeholders serves to validate the investment social/environmental objectives at the level of the fund and its investments.

Stakeholders will be mapped and prioritized at both levels (fund and investments). The objective is to identify which stakeholders are impact beneficiaries or contributors, as well as their respective priorities and expectations. Therefore communication with stakeholders is an essential part of the whole process.

3. How to measure results and impact through indicators

In order to transform the objectives described in the first step into measurable results, the Impact Value Chain and its indicators must be clearly established.

Outputs are linked to an organisation’s internal activities and are generally easier to measure (indicator: number of wells installed). In contrast, the outcomes (indicator: increase in population benefiting from water) and impact that define long term and broad change are situated outside the scope of the organisation. They are therefore more difficult to measure.

Choice of indicators: The SDGs as a reference

To begin with, it is essential to define the indicators that would make sense and then check their relevance within existing reference frameworks.

Preferably, we select indicators within existing repositories (in priority SDGs, but also their correspondence with IRIS and GRI or others). The indicators must be SMART (Specific, Measurable, Achievable, Relevant, Time-bound).

One of the main obstacles is the evaluation of the contribution to the SDGs in terms of impact. Indeed, many SDGs indicators are macroeconomic in nature for use by governments. They do not have an explicit role for investors and companies.

On this basis, we extracted about forty objectives from the 169 objectives of the SDGs. Relevance and benchmarking criteria guided our choice.

Choice of investment theme : Existing SDG Frameworks of Reference

When selecting SDG-related investment themes and indicators, we refer in particular to the following research and methodologies:

Our approach also takes into account the five dimensions of impact of the Impact Management Project to determine and understand an organization’s contribution to the SDGs.

We also integrate the Investment Leaders Group In search of impact, a document based on the SDGs with six investment themes and their indicators.

4. How to verify and value impact

The creation of a feedback loop makes it possible to improve the strategy and revisit objectives, results and indicators if necessary. Then, we come back to the stakeholders to make sure of the value of the impact created. This can be done through interviews with stakeholders, but also by comparing results with similar organisations or by consulting existing documents. Finally, we privilege narratives such as customer satisfaction and storytelling for this type of approach.

5. How to monitor and report on impact

This stage involves setting up an impact monitoring system, in terms of data to be collected, technology to be used, level of detail, frequency, analysis and responsibilities. The aim is to deliver impact reports that meet internal and external public concern expectations.

In conclusion

When we develop an impact framework for a fund under development, we implement the above strategy step by step throughout the investment process:

When we develop an impact measurement strategy for an existing fund, we start by a diagnostic questionnaire that we compare with our approach. We then conduct and analyze these same steps while mapping existing investments, their objectives, the various activities undertaken and linking them to the SDGs. Our analysis is done in collaboration with the companies in which the fund has invested. These validate or complete our analysis.

We are currently working on an impact management framework for a fund that will be created in Jordan. It will invest in businesses that serve Syrian refugees. We also support funds and foundations in the field of impact and social due diligence of entrepreneurs. Our presence, networks and expertise in Southern Africa for many years is what informs our approach.

In conclusion, impact measurement (more specifically related to the SDGs) is an exciting and growing sector. The challenge is to navigate through the existing and sometimes overlapping methodologies without getting lost. Our strategic watch allows us to synthesize existing sources, a permanent watch within a field in full effervescence. Our objective is for 360impact to become a reference in the field of impact related to SDGs.

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