by Marta Maretich @maximpactdotcom

Let’s face it: metrics are a pain. Even impact investors, committed to the principle of measuring social and environmental impact, find them so.

While it’s true that the art and science of impact performance measurement have made strides in recent years (GIIN’s IRIS now gives the impact investing sector standardized tools to work with; projects including ImpactBase and the open platform WikiVOIS are beginning to aggregate data) impact investing organizations are still finding it difficult to “do metrics”; that is, to build impact performance measurement systems that produce reliable, meaningful and above all useful data.

Frustration about metrics is common in the sector, as is skepticism about their value. Many organizations find impact measurement expensive and time consuming, draining resources that could be put to better use. Investees complain that reporting is burdensome, especially when their time could be spent developing core aspects of their businesses such as management, financial processes and governance. Even when impact investors successfully collect performance data, they often don’t know how to analyze or make use of it.

With all these difficulties, are impact performance metrics really worth the trouble? Are they there merely to satisfy funders or as window dressing? Or do they have a more central role in the long-term success of impact investing?

The rubber hits the road— at last

These questions were explored by the participants of Aspen Network of Development Entrepreneurs (ANDE) Metrics Conference. ANDE has been at the forefront of establishing impact performance measurement standards and practices from early days. In June it convened a group of seasoned impact investors including Grassroots Business Fund (GBF), GIIN and Village Capital among others to explore the reality of impact metrics as they are today and consider their future. ANDE Executive Director Randall Kempner wrote about his experience in this recent post for Forbes.

The key message emerging from this conference is that the sector’s understanding of impact performance metrics is moving to a new level. In 2009 when ANDE held the first metrics convening, “the bulk of the conversation focused on standardization and this new metrics taxonomy called IRIS”, writes Kempner. Today, real-world experience is bringing a deeper understanding of the value of metrics to developing impact businesses. The rubber, as they say, is hitting the road and inspiring a re-evaluation of the practice of evaluation.

Impact metrics that work in the real world

At Maximpact we believe that the only way for all of us to get better at impact investing is to do more impact investing: to get involved, make deals, build businesses and, crucially, to share what we learn. As the sector grows up, moving from theories of how impact investing should work to an understanding of how it really works,what should effective impact measurement look like?

Simpler: As GBF Director Harold Rosen pointed out in this interview, recent years have seen a push toward more and more sophisticated measurement, applying an ever-greater number of standards, calling for ever more data. Yet in practice this approach is burdensome for impact investors and investees alike. According to Rosen, the multiplication of performance measures runs the risk of creating “scaffolding as opposed to substance” that is, building a complicated superstructure of metrics over a void of meaning. It might look impressive, but it achieves nothing.

A better way, suggested Rosen, is to cut back on the number of measurements and make them count more. GBF has scaled its data gathering down some 80%. Where they once used 8-10 indicators per project, they now use 2-3. The key, he says, is choosing the right impact measures for the particular investment. But, of the dozens of performance metrics offered in the IRIS catalogue, what would those be?

Strategic: Performance indicators should be tied to business development strategy, said Rosen an opinion confirmed by other ANDE conference participants. The IRIS catalogue’s broad range of standards means planners can choose those measures that will feed their businesses; strategic needs. They can be identified during the due diligence process and built into the strategic plan for the business. In this way, the business gets the benefit of the metrics; and the metrics make sense to investees and investors alike.

This approach delivers a double benefit: it provides data for use in developing the business while demonstrating the value of metrics to investees. Most successful businesses invest in metrics as a way to garner strategic information and maximize learning. The same opportunity exists for impact businesses even when they use metrics in a much more limited way. When metrics are strategic, the process of collecting and analyzing data and applying the lessons learned from performance measurement becomes normal a part of doing business.

Light touch: Measurement takes time and costs money; the outlay can go as high as 5-10% of total assets invested for some businesses. Using fewer, more select metrics is one way to bring down the cost as well as the burden to businesses. Another is to establish measurement processes that use a light touch and dovetail easily into the day-to-day operations of the business.

GBF employs asocial metrics expert shared across a number of impact businesses in the same region. This professional becomes a part of the staff for impact businesses,supporting their data collection efforts and easing the workload. Randomized sampling, using good survey design and high-quality professional analysis,means that a smaller amount of data can provide most of the strategic information the business needs.

Tailored to fit: The ANDE conference reflected a move away from standardization in metrics. Participants largely agreed: one size does not fit all. Each business in an impact fund portfolio will have different strategic development needs so each will need to measure different aspects of performance. Choosing metrics with an understanding of the special needs and context of each investee requires skill.But it means that impact reporting helps rather than hinders growth; and it maximizes positive impact.

Client-led: Impact investing produces social and environmental returns, not just profits. To find out if these “soft” returns are happening, businesses and the impact investors that finance them need to look to the beneficiaries. Several participants at ANDE including Root Capital stressed the importance of collecting client data and feeding it back into the metrics loop. Well-designed surveys and random sampling were key to the success of this approach on the ground. Verifying the accuracy of this data is essential and should be built into the reporting process.

Consistent: The impact investing arena is broad; and getting broader every day. Today there are many different kinds of impact investors in the field: philanthropists, intermediaries, pure financiers. These investors have different philosophies of impact and different expectations when it comes to outcome. This is reflected in the way they apply metrics.

It’s natural that different kinds of impact investors will require different metrics from the businesses they finance. However, the consistent application of impact performance metrics is key to establishing impact investing as a legitimate asset class. This is one argument for using standardized tools, such as IRIS, which will eventually allow comparisons between businesses and projects. But a diversity of systems can be valuable, too. For impact investors using their own measurement systems (for example some foundations) the onus is on sharing their methods and their data with the broader impact community. Only by aggregating data and experience will the sector move forward with impact performance metrics.

Transparent: The ANDE conference demonstrates that the practice of impact measurement has advanced,yet it still has far to go. Definitions remain fluid, making transparency an issue: it’s not unusual for IRIS-compliant partners in a single impact project to come up with very different numbers for the same IRIS measurement. This undermines the value of metrics and erodes confidence. To improve, the sector needs to keep working toward clear, shared definitions.

And then there’s the question of inputs versus outcomes. Many impact investors support businesses using range of methods, often providing grants or expertise in addition to pure impact finance. Smart subsidies of this kind are an effective way of building capacity in key areas; not least in metrics; but their effect needs to be accounted for when it comes to reporting impact outcomes. By building transparency and consistency, the sector is building up a system of metrics that allows comparison and aids learning.

So, does impact investing need metrics?

The answer emerging from the ANDE conference is yes; with conditions. Impact investing is defined by its commitment to demonstrating social and environmental impact. Arguably, the only way to do this is to monitor, evaluate and then share, social and environmental performance data. This is the best case for why the whole sector needs to keep measuring,even though its not easy.

It has to be the right data, of course. And it has to be used in the right way. The ANDE conference shows how committed impact investors are working to refine their measurement practices, including systems like IRIS, and find ways to make them better serve businesses, client groups and investors alike.

Further metrics resources

ANDE 2013 Metrics Conference videos and resources

When Measuring Impact, We Need to Move Beyond Counting by Mike McCreless for Forbes

Impact Investing’s Three Measurement Tools by Margot Brandenburg for the SSIR

How to Measure Social Impact by Melissa Ip for Social Enterprise Buzz