OECD Says Impact Investment Needs Universal Standards

Impact investing could be more effective if universal measurement standards were implemented and impact goals were better defined, an OECD report says.

The report studied 590 social impact investment (SII) policies in 45 countries to learn about the growing impact investing market. It said the challenge for SII was in defining impact, as public and private organisations measured different elements by different yardsticks.

“In order to harness the full potential of finance for sustainable development, we can’t shy away from the urgent need for what this report calls ‘the impact imperative’: a shared understanding of how we measure the impact of our collective investments in sustainable development,” the report said.

In 2015, the OECD established a framework to differentiate between SII and conventional investments and called on social impact investors to define explicit and measurable impact goals, and commit to compulsory reporting.

But evidence in the report showed that most investors currently sought market rate returns, with an assessment of achieved social outcomes that was “uneven at best”.

https://twitter.com/OECDdev/status/1086291809226117120

OECD development co-operation director Jorge Moreira da Silva said: “To counter the risk of ‘impact washing’, public authorities have a responsibility to set standards and ensure they are adhered to.”

According to the report the risk of impact washing was compounded by a number of factors including the diverse definitions of impact investing, a lack of internationally comparable data, and underdeveloped impact measurement practices.

The OECD set out a four-pillar foundation to achieve the “impact imperative”, and better direct investment for sustainable development.

These pillars are around:

1.    ensuring financing is going where it is needed most;
2.    applying innovative approaches to reaching the SDGs;
3.    addressing data and measurement challenges; and
4.    evaluating the social, environmental and economic results of public initiatives.

“All sustainable development finance actors – and the private sector more broadly – share the responsibility for delivering the 2030 [SDG] Agenda, and this means adopting a shared understanding about what we mean when we talk about impact on sustainable development,” the report said.

The OECD noted that 45 countries have adopted public instruments related to impact investing, while 20 have adopted a legal definition for social enterprises.

It also noted the number of social impact investment funds had quadrupled in two decades to over 200 funds with US$228 billion (A$319 billion) invested, more than half of that in emerging markets.

Latest report on #impinv from @OECD points to policy, data, financing and innovation action areas, with role of intermediaries pivotal in connecting the supply and demand sides of the market as well as in developing the broader ecosystem. https://t.co/K0bN37DMV9 via @OECD

— Com Council for Aus (@ComCouncil) January 17, 2019

Australian impact investment leaders welcomed the OECD report.

Rosemary Addis, the chair of the Australian Advisory Board on Impact Investing, told Pro Bono News the report emphasised that accountability for impact was critical.

“[This] aligns with the board’s call for greater transparency and disclosure of impact goals and performance and Australia’s engagement in developing industry-based principles and standards to set expectations and drive consistency, comparability and impact integrity,” Addis said.

“These steps are fundamental to articulating what good practice looks like, setting expectations and enabling wider participation based on informed decision making and choice.”

She said the shared goal was to see better outcomes for people and the planet with organisations competing on the basis of the impact being achieved.

Jessica Roth, the founder and director of the Social Impact Hub, said she was pleased to see the OECD was aware of the risk of impact-washing, and was recommending steps to prevent it.

She told Pro Bono News it would be great if there were universal standards on measuring impact, but that they were not there yet.

“There are a number of exciting developments to try to develop universal standards; for example the Universal Commons project is launching a measurement prize to encourage people to submit ideas about a standardised way to measure impact,” Roth said.

Australian Social Value Bank impact specialist Andrew Callaghan added that there was huge potential for government to play a role in evaluating what social impact investments had the potential to scale.

“Government’s ability to use data across government departments to understand impact goes way beyond what impact investors can achieve on their own,’” Callaghan told Pro Bono News.

He said there was definitely a need for government and international bodies to play a greater role, not just in creating principles and guidelines, but also making actual impact measurement tools to make impact measurement standardised and achievable.

“One of the biggest barriers to progress in impact investment is that from a risk management perspective, financial investors and institutions find social outcomes metrics are so open to interpretation as to whether an outcome has been achieved, that they simply don’t pass due diligence tests,” he said.

“Data sharing and standardisation of what is being collected would open up the possibility of standardised metrics.

“Wellbeing measurement is an example where countries and the OECD have used a common approach which has led to the ability to benchmark progress against other countries and international trends.”