Research

The imperative for impact measurement

It can be easy for an organisation to claim that it is doing good, but how do we know? Impact measurement asks the right questions to evaluate these claims.

All organisations have an impact on social or environmental conditions, whether directly or indirectly, intentionally or unintentionally. Across the private sector, there is an increasing interest in identifying, evaluating, and reporting on non-financial measures. As we explain below, the framing of impact influences the way in which it is measured, and indeed, valued. Rather than viewing impact measurement as the search for a single consolidated metric, we instead think of it as a toolkit of principles, approaches, and processes which allow for informed judgements of what a project or investment has achieved what in terms of social and/or environmental changes.

Impact can take many forms. For example, an organisation may be aiming for a reduction in pollution, an improvement in education, or to build community cohesion. In the Oxford Impact Measurement Programme, which we co-direct at Saïd Business School, we define impact as: material changes, in the long-term conditions of people, planet, and systems, whether unintended or intended, and beyond what would have been expected to occur. Each of these components must be considered in how measurement of impact is examined.

Pressure is mounting on businesses to look beyond the bottom line, particularly when it comes to sustainability.

Any intervention will likely affect a range of stakeholders: from customers, to investors, to the broader community or environment. Not all of them will have influence over resources. Our research recognises that it is also a negotiation process that includes covert power dynamics, shaped by the constraints of time, money, and data. Therefore, what gets prioritised should reflect what is most important to these stakeholders, rather than just what is easiest to measure. The deliberate choices on what we choose to measure, and not to measure, tells us a story of what we choose to value. Conceptualising social accounting as a means of empowerment recognises stakeholder plurality, and responds to long-standing critiques of positivism.

Why is impact measurement needed?

Traditionally, impact measurement has been most prevalent in the public sector, expressed through concepts such as performance management or programme evaluation. Governments spend significant amounts of money on initiatives designed to have a social or environmental impact, and they may want to know, or even be mandated to demonstrate, that those initiatives are meeting their intended objectives. Often, these approaches have been focused on a compliance-based reporting, with a view to providing accountability for taxpayers and regulators. Beyond the public sector, the fields of international development, public health, and sociology, among others, have grappled with issues of measurement and valuation over many decades.

More recently, there has been a resurgence of efforts to understanding and measure social and environmental impacts. As Colin Mayer has outlined in recent books, companies are looking beyond the single financial bottom line and grappling with the complexity those plural bottom lines create. Boards and investors are integrating these considerations within strategic planning and corporate purpose initiatives. Institutional investors are using non-financial information to inform investment decisions.  Impact investors are intentionally deploying capital to generate social and environmental impacts. Philanthropists, civil society, and networks that are advancing systems change are also asking fundamental questions around impact measurement. 

Each of these stakeholders has different objectives and goals, and impact measurement approaches will continue to develop as they align with the intended users and uses. For example, a leader may want to ‘prove’ certain impacts in order to justify more investment. On the other hand, they may want to ‘improve’ impact through reaching more under-served groups, such as via new partners or channels. As well, the decision makers – boards, management teams, investors, or others – may each require different types of information. By providing targeted information on the impact of an initiative or organisation, impact measurement can inform stakeholders. It can secure buy-in for future investments, encourage further efforts in what is working as intended, and shift away from what may not be, or address any instances of negative impacts. 

An indoor farming facility offers a promising look into a future where sustainable development goals are met.

The opportunity for better impact measurement

We only have look around in daily life to see how we are seemingly obsessed with measurement. Whether it a broad national measure such as GDP, or tracking the number of steps you’ve taken today, metrics influence our lives in both tangible and invisible ways. There are both pros and cons to this. Standardised metrics can certainly influence positive behaviours using comparable and longitudinal data (e.g. having a target of 10,000 steps daily). However, an inordinate focus on metrics may promote negative effects and incentives (e.g. not paying attention to diet). In the absence of a transparent audit or assurance regime, there has been a rise in ’impact washing’ – where organisations overclaim the impact they are creating or contributing to.

Research on impact measurement is still in early days, with few conventions about how to handle the plurality of stakeholders and the extent of ambiguity. This includes asking ‘why’ before ‘how’. For example, it can be appealing to find a complex approach that provides precise answers, but perhaps more important to know whether you are asking the right questions. It is often easier to jump straight into selecting key performance indicators (KPIs), but more challenging to understand what types of data are necessary to inform decision making, and to ask who is deciding, and on what basis.

In the area of impact investment where investors intentionally seek social and environmental impacts alongside financial returns, the research and practice contend with many tensions and opportunities. On one hand, there is movement towards shared language, comparable indicators, and sector reporting which are important conditions to meet the information needs of both asset owners and asset managers. They are also welcome steps towards agreed conventions.  On the other hand, impact measurement can also meet the needs of other stakeholders, such as integrating client perspectives on if and how their economic or social situations are improving, and to incorporate the interests of all affected stakeholders. The challenge and opportunity is to find the right balance for each unique context, and to commit to doing better over time.

Impact measurement is of course about looking back – understanding what happened, why it happened, and what it all means. It is also about looking forward to test new hypotheses, validate assumptions, or disprove an approach. In this way, impact measurement should be framed as a dynamic activity – looking back, looking ahead, and looking beyond – that moves beyond reporting, to adding new value. And while we are still in the early stages of designing social and environmental accounting regimes that match the sophistication of traditional accounting disciplines, the scale and urgency of social and environmental challenges around us may create the need for us to get there quickly.

Take a look at the Social Impact Webinars playlist on Youtube which has all the webinars across the three social impact programmes at Saïd Business School.