Last month two members of the Aga Khan Foundation U.S.A. (AKF USA)’s Impact Investment team attended theAspen Network of Development Entrepreneurs’ (ANDE) fourth annual Metrics Conference in Washington DC. ANDE’s overall mission is to promote prosperity in the developing world through entrepreneurship and small and growing businesses (SGBs) by helping investors realize the power of these ventures to produce economic, environmental, and social impact. In this way ANDE hopes to energize development with carefully focused, market-driven processes.
That fits with AKF USA’s Impact Investing Initiative, which grows directly from the Aga Khan Development Network (AKDN)’s history of social development programs and its leadership in mobilizing capital for social good. For more than 50 years AKDN has financed critical infrastructure in developing countries including banks, energy, and media enterprises, with profits reinvested in other economic and social development initiatives. To apply the discipline of impact investing to AKDN’s portfolio of social infrastructure investments, AKF USA launched its Impact Investing Initiative in February 2011. The Initiative supports the impact investing sector by creating opportunities for mobilizing investment capital for high-impact social enterprises within AKDN.
At the ANDE conference members discussed new approaches on how to measure their broader impact for society, including poverty reduction. A core requirement for growing the impact investing sector is the creation of shared standards for impact measurement as rigorous as those that track financial performance.
The two emerging models for impact metrics in the ANDE community are the Impact Reporting and Investment Standards (IRIS, http://iris.thegiin.org/about-iris) and the Global Impact Investment Rating System (GIIRS, http://giirs.org/about-giirs/about). IRIS provides a common qualitative reporting language for organizations’ social performance, and GIIRS offers an independently verified quantitative assessment of a company’s social and environmental impact. The number of impact investment funds requiring portfolio companies to report on social performance (and in some cases to obtain GIIRS ratings) continues to grow. Over time GIIRS-rated companies will gain preferential access to an entire subset of impact-oriented financial institutions.
Beyond the environmental or social benefits that ANDE members measure, a recurring question across regions and sectors was whether the metrics actually help to alleviate poverty. While small and growing businesses certainly sustain livelihoods and employment in emerging economies, IRIS and GIIRS focus the analysis on the business itself rather than the community context, so the measures may be less significant at the population level. David Roodman (author of Due Diligence: An Impertinent Inquiry into Microfinance) said during the first plenary, “Research is the pursuit of responsible generalization.” If that is the case, how do we most responsibly generalize about these enterprises’ impact on poverty reduction?
This question is a preoccupation for AKDN too. In 2007 AKDN initiated Quality of Life (QoL) assessments in geographical areas where it brings together multiple social interventions, an approach termed Multi-Input Area Development, or MIAD. Drawing heavily on Nobel-prize-winning economist Amartya Sen’s work on capabilities, QoL assessments seek to understand changes in people’s lives by monitoring key indicators across several key domains (household economy, health, education, natural and built environment, and social organization) in order to track how they change over time. That allows communities and program managers to adjust interventions accordingly.
The QoL assessment has two central components, one quantitative and the other qualitative. The first is a household survey which uses a structured questionnaire to collect representative quantitative information on the key indicators at the household or individual level over time (savings and debt levels, perceptions of individual health status, and primary/secondary school completion rates, for example). A qualitative study of “sentinel sites” involves a limited number of villages or urban areas selected to reflect variations in key characteristics affecting quality of life. These studies aim to capture diversity in a given geographical area, rather than claim to represent the average.
At first glance impact measurement tools like IRIS and GIIRS don’t obviously overlap with AKDN’s Quality of Life assessments. QoL focuses on human development through social interventions at the household level, while IRIS and GIIRS drive economic development through social businesses measured at the enterprise level. Furthermore, QoL assessments do not attempt to attribute specific results to AKDN’s work, whereas enterprises using IRIS and GIIRS seek to isolate their impact on selected social indicators.
However there are ways in which AKF USA can help introduce the QoL language of poverty-reducing social interventions into the menu of IRIS indicators. Another possibility is to identify key household level indicators that can be linked to enterprise-level data that IRIS and GIIRS have already compiled in order to decipher those enterprises’ direct impact on improving livelihoods in their local markets.
If international donors and impact investors want to know how their efforts are ameliorating poverty in addition to driving business growth, the philosophical and technical approach of QoL can vitally inform the social metrics discussion. The ANDE conference advanced the dialogue on how to measure the benefits of reducing poverty for international investors. It is great for AKDN to be part of that discussion.
Adam Caplan is Impact Investing Initiative Associate with AKF USA.