Impact and social innovation

Do we know the right way to measure the impact of an investment or project?

Do we know the right way to measure the impact of an investment or project?

The word which has gone hand in hand with almost all of the references to Social Corporate Responsibility/Sustainability in 2018 has been: “impact”. Both in terms of impact investing and the assessment of social innovation projects, the word impact constantly comes up. Nevertheless, what exactly do we mean by this and, most importantly, how can we measure this, given that the organizations and sectors involved are so different?

The Global Impact Investing Network is attempting to establish measurement standards within numerous contexts and has conducted a survey of investors in order to find out how they understand and measure the impact of the project or company in which they are going to invest.

The vast majority (91%) measure impact in terms of company output; i.e. the impact of the company’s production, which might be environmental or social. For example, they might consider the negative effect of contamination resulting from manufacturing activities or the positive social effect of hiring people at risk of exclusion.

77% also measured impact in terms of the results (or consequences) of their activities; namely the changes brought about in the social and environmental surroundings as a consequence of their product. For example, investors are evaluating whether the food produced by a company, despite officially complying with health requirements, is having a detrimental effect on children’s obesity levels. This second measurement is a more complex one, but public opinion is pushing companies towards this, and the regulators are taking this into account.

The cornerstone of social innovation lies in the search for an innovative solution to a social need which usually has positive externalities for society. Therefore, it appears that the best way to measure its impact should be primarily based on its results, which, although difficult, is a better way of learning about its reason for being.

About the author:

Joaquín Garralda is a professor at IE University, a specialist in strategy and focused on the area of Corporate Social Responsibility. He is a speaker at several conferences and programs, and also acts as a driving force for CSR from various platforms. Chairman of Spainsif and Chairman of the Ethics Committee of the MicroBank Ethic Fund (Grupo Caixabank). He is a regular contributor to the leading economic information media in Spain and Latin America.