The government of Zambia in 2021 committed $200 million to a fund aimed at building an investable pipeline and catalyzing private capital to high-impact, local investment opportunities.
The Constituency Development Fund allows each of Zambia’s 156 districts to identify and secure funding for high-priority development projects, such as building schools, setting up health centers, installing solar panels, drilling wells, and helping communities adapt to climate change.
How will the Constituency Development Fund know whether it’s succeeding? The fund doesn’t yet have an impact management or measurement process in place. That could actually deter private investors from supporting high-impact investment opportunities in the country.
That risk exists across emerging markets. The lack of standardized approaches, capacity and expectations for impact management and measurement represents an obstacle to the mobilization of capital, finds a new report from the University of Oxford.
“It is likely the case that those who are most in need have the least capacity to undertake additional impact measurement when accessing capital,” the researchers conclude in the report, “No data, no deal?”
To ensure that impact capital doesn’t exacerbate existing disparities in access to capital, local fund managers and entrepreneurs need replicable models, capacity support and funding for impact management and measurement. The starting point is for investors and fund managers to proactively share approaches and lessons.
“One question I asked every investor I spoke to was how much time do you spend talking to other investors about impact management challenges? The answer was not much at all,” George Carew-Jones, the report’s lead author, tells ImpactAlpha. “Impact measurement should not be proprietary information.”
Power imbalance
Interviews with 20 impact investors and intermediaries illuminated a rift between what funders, often in the Global North, expect from their investees in the Global South in terms of the impact of their investments. Investees often feel reporting requirements are too stringent or rigid; that standards are imposed on them without their input; and that metrics aren’t appropriate or realistic for the intervention.
There’s “a risk that impact measurement and management is seen as a neocolonial barrier to capital access for the Global South,” the report authors write.
Need for standards
Standardized frameworks and best practices are emerging for impact monitoring and reporting, but those frameworks aren’t readily adoptable or used in many emerging market contexts.
“Monitoring and reporting is the next area where people are really trying to make progress,” one research participant observed, “but right now it’s a real wild west.” Another participant said lack of standardization was leading to a “transparency crisis” in the field.
“If there isn’t great visibility on what everyone is doing, it reduces the ability for accountability,” Carew-Jones adds.
Practical impact
The report identifies three criteria needed to establish practical, accessible standards for impact investments: disclosure of baseline conditions against which impact metrics are tracked; “logical causal reasoning” for attributing outcomes to the impact intervention; and affordable means of impact auditing, leveraging open data sources and AI where possible.
One promising model: Global Innovation Fund, a London-based nonprofit impact fund focused on the world’s lowest earners, provides investees with its “Practical Impact” measurement framework that requires tracking of just three metrics: number of beneficiaries over a decade, individual income impact, and likelihood of an intervention’s success in 10 years. It adjusts data requirements depending on the maturity of the portfolio project.
“This tailored approach avoids overwhelming small organizations that have lower capacity to understand and undertake impact measurement,” the report finds.
Capacity building
First-time fund managers often have limited budgets to spend on the legal, operational, marketing and investment screening and diligence requirements of running a fund. For those pursuing impact, impact measurement and management is an added cost.
First Circle Capital, a women-led fintech investor in Africa that is raising its first venture fund, is getting training and capacity building on impact reporting from its investors. It would like to complement that with working capital to hire more analysts.
“We’re starting to see some dedicated capital for that,” says First Circle’s Selma Ribica. “New working capital and technical assistance buckets that should come to market soon to help general partners like us bridge that gap.”
Adds Carew-Jones, “For catalytic-style investors with a mandate of facilitating blended finance transactions, they could create a huge amount of leverage by putting money into technical assistance on impact management.”
