Five metrics to help investors point their investments toward impact

Bernadette Clavier, Jill Lanney and Neil Malhotra
Guest Author

Bernadette Clavier

Guest Author

Jill Lanney

Guest Author

Neil Malhotra

This post is part of ImpactAlpha’sFrontiers in Social Innovation” series with Stanford GSB Center for Social Innovation. The posts in the series are adapted excerpts from the book, “Frontiers in Social Innovation,” edited by Neil Malhotra of the Stanford Graduate School of Business.


Do you come from the financial sector? Do you have a genuine interest in impact? Did your firm put you in charge of a small fund and ask you to explore impact investing, hoping you would learn and figure things out along the way? If you feel confident in your ability to make good financial decisions – but wish you had had a chance to develop an instinct for impact honed by years of interaction with impact organizations – you’re not alone.

In 2017, we at the Center for Social Innovation examined the hiring preferences of impact funds and found that many fund managers believe that accumulating investing experience takes years but that people can learn about social impact quickly and easily. The result is that only 45% of the impact investors we studied had experience in social impact before starting to invest for impact. 

As you figured out already, qualifying social investments requires a complete reframing of your traditional selection criteria and processes. Incorporating multidimensional impact considerations on top of the tradeoff between risk and return makes it difficult to engage with impact in a way that is rigorous and unbiased. You need ways to understand which of your investment options will generate the most impact and whether a well-intentioned social program can also have a negative impact on society. 

Academics often rely on randomized controlled trials to assess social and environmental effects, both short term and long term, of so-called interventions or programs. But carefully designed studies are costly and aren’t always practical when time is of the essence, especially when trying to assess a seed-stage venture deal. Evaluating the future impact potential of a product, service, organization, or policy absent study results and serious modeling capabilities is an art and the privilege of longtime experts who can draw from a robust set of experiences to inform their judgment.

Absent a specialized impact rubric it’s hard to imagine how reliance on traditional financial measures of success could be effective at delivering social value to communities. 

Impact compass 

We’ve used the Stanford GSB Center for Social Innovation impact compass to guide the development of an impact rubric at one of our flagship programs: The GSB Impact Fund, a student-run venture capital fund making early-stage investments in impact-first companies. 

The fund invests across seven different impact verticals: education, energy and environment, fintech, food and agriculture, healthcare, justice, and urban development. Each year, students source hundreds of companies for potential investment. Comparing the impact of companies from different sectors can be challenging. That’s why having a clear framework for assessing impact is critical. 

At the Fund, we evaluate the impact of potential investments using five metrics derived from the Impact Compass, each scored along a three-point scale:

  1. Impact Scalability: How many people does the company’s target market directly impact? (1 = Thousands, 2 = Millions, 3 = Billions)
  2. Impact Materiality: To what degree is impact (at the individual and macro levels) core to the solution? (1 = Tangential impact,  2 = Intentional impact, 3 = Transformative impact)
  3. Mission Alignment: Is the business aligned with the impact mission? (1 = Potential misalignment, 2 = Somewhat aligned, 3 = Completely aligned)
  4. Impact Efficacy: What evidence exists on the efficacy of the solution? Is the theory of change robust, logical, and achievable? (1 = Anecdotal / descriptive, 2 = Correlational, 3 = Causal)
  5. Diversity and Inclusion: Is the company led by and/or responsive to the needs of underrepresented communities? (1 = 0 DEI indicators, 2 = 1-2 DEI indicators, 3 = 3+ DEI indicators) 

Each company is assessed along a three-point scale, with three being the highest possible level. Companies do not need to be ranked at a level three for all five of the metrics to receive investment from the Impact Fund. Every year, we invest in companies that range across these criteria, though most of our eventual investments score well overall. 

The metrics do help us understand where the companies’ impact strengths and weaknesses lie. For some companies, we see gaps that are to be expected at early-stage impact companies; for example, many of the companies we consider are still building out their evidence bases or impact measurement capabilities. But for others, this can point out a fundamental problem with the company’s impact like an unexpected conflict between financial and impact goals.

Quantifying impact

This year, the Fund invested in Honest Jobs, a digital marketplace focused on helping people impacted by the criminal justice system find employment. Honest Jobs helps employers looking to adopt fair-chance hiring practices find and benefit from the work of formerly incarcerated people. 

At a high level, we were immediately excited about the impact story: The majority of formerly incarcerated Americans struggle to find employment upon reentry into society, which is one of the leading causes of recidivism. Using our metrics, we can get a more clear and quantitative picture of the nature of Honest Jobs’ impact. 

  • Impact Scalability: Level 2 – We believe Honest Jobs can reach millions of people. Millions of Americans have criminal records, and each year, over 600,000 people are released from prison.
  • Impact Materiality: Level 3 – Impact is core to Honest Jobs’ solution. At an individual level, Honest Jobs can be life-changing. Employment decreases the likelihood of recidivism and can help individuals become productive contributors to their families and communities. At a macro level, we believe Honest Jobs is creating a new solution for a previously difficult-to-address market.
  • Mission Alignment: Level 3 – Honest Jobs earns revenue from potential employers looking to adopt fair-chance hiring practices and employ the formerly incarcerated. Its business model is inherently tied to its impact, with no conflict between financial and impact goals. The team is committed to expanding and measuring their impact.
  • Impact Efficacy: Level 2 – The evidence is clear that gainful employment is a key factor in determining recidivism rates and has a number of other positive impacts on a person’s life. However, there are other important factors like mental health or substance abuse disorders that may impact recidivism. Because Honest Jobs is still in its early stages, we have not yet seen robust, long-term data around the impact of using the platform on job seekers over time. As the company scales, we hope to see even more evidence emerge about its impact.
  • Diversity and Inclusion: Level 2 – Honest Jobs is focused on helping a marginalized population: the formerly incarcerated. Many of its employees, including its CEO and Co-Founder, Harley Blakeman, are formerly incarcerated and know firsthand the challenges of accessing employment with a criminal record. The company is 35% female, 20% Black, and 10% Latinx, and Honest Jobs is working to further improve its representation. 

The strength of Honest Jobs’ impact across all five metrics, as well as our belief in the potential of the business, informed the Fund’s decision to invest. 

To accelerate the transition from a workforce trained in the mindsets of short-term profit maximization to one fluent in evaluating both financial and impact returns, the finance profession will need to hire large numbers of impact professionals with nonprofit and foundation backgrounds. Talent combining both impact and finance skills and mindsets is a rarity, as being proficient in both requires being able to hold potentially opposing goals in tension (i.e., compromising some return to achieve social impact). Business schools have a key role to play to accelerate a convergence of the social and the financial talent pools.


Bernadette Clavier is the Director of the Center for Social Innovation which educates insightful leaders for social and environmental change.

Jill Lanney is the outgoing Co-Chief Investment Officer of the GSB Impact Fund and an MBA student in the Class of 2022. 

Neil Malhotra is the Faculty Director of the Center for Social Innovation and the Edith M. Cornell Professor of Political Economy at the Stanford Graduate School of Business.