Impact Investing

Measuring impact

Together with the pursuit of a social impact and its intentionality, impact measurement is one of the key features of impact investing

According to the definition adopted by Social Value Italy, “social impact” means “the long-term effects, positive or negative, primary or secondary, produced by a development intervention, direct or indirect, desired or involuntary”

Although a univocal definition has yet to be reached on the optimal measurement method and on a set of shared metrics, it is possible to summarize some of the common features traced by the European Venture Philanthropy Association as follows:

  • Definition of the social objectives that the activity intends to pursue
  • Analysis and involvement of the mainstakeholders in the process
  • Use of the Theory of Change as the main reference tool for the measurement process
  • Identification of metrics able to represent the objectives, in terms of outcomeand impacts and not only as output
  • Use of the counterfactual method to identify impacts, where possible

Theory of change

An example from social housing
1 Input
Set of resources used in the activity
Values in the euro, number of people employed, etc.
Investment of €10 million, 2 architects and 1 full time financial analyst, etc.
2 Activities
Concrete actions implemented by the company
Development / implementation of projects, construction of new structures, etc.
Purchase of land, construction of the building, search for tenants to occupy it, etc.
3 Output
Tangible and measurable effects produced by the company’s activities
Number of persons reached, number of goods/services sold, etc.
Construction of a property in social housing with 100 apartments
4 Outcome*
Changes produced by the outputs generated by the activities
Durable effects realized towards the target
Improvement of housing conditions: 90 dwellings out of 100 are occupied by families who exit their disadvantaged housing conditions
5 Impact*
Changes net of attribution, drop-off, deadweight and displacement effects
Evaluation of alternative solutions, potential externalities, etc.
Out of the 90 families, 85 did not meet the requirements for public housing and turned to social housing
*Measurement of the quality and quantity of the effects produced: for example in social housing it is important not only to build housing, but to build them where it’s needed; if many dwellings remain vacant, the outcome is low even in the presence of a high output indicator.
For some references on measuring social impact, a selection of papers and reports is proposed: