Social Impact Measurement — A (Partially) Reformed Sceptic Writes

A friend of mine is currently an Assistant Director at the Royal Court Theatre, and shortly before I joined On Purpose, I went to see one of the plays which he had been working on, called “If You Don’t Let Us Dream, We Won’t Let You Sleep”.

The play proposes a scenario whereby various components of personal and societal wellbeing have been commoditised into “Unity Bonds,” which allow private individuals and institutions to invest in — and profit from — various social outcomes. Sound familiar? The market had developed to such complexity that investors were shorting particular markets — in the most extreme example, the market for the frequency of rape — and encouraging negative social outcomes for personal gain.

The issue raised is an important one around the movement to measure and monetise social impact. As tantalising as the potential rewards for developing a comprehensive and transferable social impact measurement framework and associated investment products are, it is important to consider the risks of the systems that are being designed.

Aside from the difficulty of calculating the effect a specific intervention has with any degree of accuracy, the additional measurement burdens placed on small organisations, the question of whether a specific impact is actually attributable to a specific intervention, and the underlying accuracy of the data, I don’t think it’s being overly cynical to assume that a system which allows private individuals and institutions to profit from social gain is open to exploitation.

Just as the first traders of grain, cotton, or wood would be astonished at the range, reach, and volatility of contemporary trade in commodities, as well as commodity trading’s abstraction from its original purpose, so it is certain that more complex — and more subvertible — systems for social impact trading and measurement will be developed in the future. In a capitalist economy (even one with significant regulation), over time, money and profit are amoral, so any trade in social outcomes needs to be transparent and robust, to ensure that investment flows where it is needed, rather than where it can maximise profit.

The development of more sophisticated social impact measurements and the opportunities that this provides for charities, social enterprises, public sector mutuals and others to compete for government contracts should not be allowed to obscure a fundamental debate — which I do not believe has happened (openly at least) — about the role of the state in providing public services.

I worry that there is an element of managerialism within impact measurement’s drive to measure, monitor and control the world around it, one that is incredibly complex, and often seemingly arbitrary. Although the measurement and assignation of value to our actions — in the form of money — forms a central part of the life of anyone living in the developed world, impact measurement threatens a world without nuance, where our humanity is calculated away with double entry book-keeping. Father Christmas will no longer have to find out if children have been naughty or nice; it will all be in the data.

When a metric is put in place to measure the quality of a service, it tends to dominate any debate around the subject, and means that the provision of the service pivots around delivering the metric, with the result that fewer resources are directed at the things that aren’t measured. The secondary education system pivots around the number of children who get 5 or more A* — C GCSEs, and consequently, resources flow towards those children on the C/D borderline. Data is useful if used to inform discussion, but not if it becomes the discussion.

Even if the system has a set of complex and interrelated metrics in place such as the UK economy, it suits the narrative to focus on one above all others, which is typically growth in GDP. Although I do not disagree that this is a vital sign of economic health, it can overshadow discussion about others — unemployment, the cost of living, or the recently introduced index of personal wellbeing. It also means that any discussion of the future economic and social direction of the UK is inextricably linked with continually rising growth, which may not be feasible or desirable.

Although a measurement of impact will prove beneficial to charities and social enterprises in many ways, any such system must recognise the inflexibility that measurement entails, and the compromises that this will introduce.

The ethical and practical side of the debate should not be lost in the rush to scale, and — if the incredulous reaction of the crowd at the play was any indication — I believe that the attitude of the public when it comes to individuals capitalising on the provision of social services is a long way removed from that of the social enterprise sector.

However, over the past 8 months, I have been more thoroughly grounded in the complexity of the subject and compelling nature of the counter-argument. This is primarily that the status quo is not working, and that the ability to quantify social outcomes in financial terms through sophisticated social impact frameworks could unleash a new wave of capital into an underleveraged sector. This is a sector whose fundamental mechanisms of income generation have not been shaken up since 1944 (the development of the modern system of developmental loans and aid, codified at the Bretton Woods Agreement), and 1903 (the development of trusts by Carnegie and Rockefeller).

The need for the development of a new way of attracting investment into the sector — and potentially the development of a new sector entirely — has been highlighted by thedifficulties many traditional charities relying on grant income have found themselves in over the past few years (although the charity sector is by no means alone in having struggled). The Government’s sloughing away of its responsibilities for direct service provision could prove the catalyst — along with the creation of Big Society Capital — that takes social investment from the fringe to the mainstream in the UK. The recentannouncement that the Peterborough Social Impact Bond has shown an interim improvement in offender rehabilitation is promising, although there are multiple hurdles to overcome if they are to become a mainstream method of financing the provision of public services.

There are signs that an impact mindset is spreading more widely with the appointment of Caroline Mason as Chief Executive of The Esmée Fairbairn Foundation. We had a very stimulating training session with Richard Kennedy — previously interim Director of Ventures at the Young Foundation, and now Managing Director of FINCA — in which we discussed the development of accounting standards over hundreds of years (which was discussed in Felix’s blog), as well as the potential for the position of Impact Director to carry the same degree of clout in the social sector that a CFO would hold in a commercial organisation.

Whether you believe that impact investment should be considered an asset class, as first put forward by JP Morgan in 2010, or as a new theory of capital, impact investment could prove tempting for portfolio diversification, providing a product whose return is not wholly based on underlying financial market conditions (interest rates, GDP), and so can diversify and spread risk on investment portfolios. Indeed, in the past week, JP Morgan has set itself the target of investing $10 billion in client assets through its Investing with Impactplatform over the next 5 years, and Goldman Sachs has announced the creation of a $250 million Social Impact Fund.

So where do we go from here? I am in no doubt that the development of social investment mechanisms to allow capital into the sector is the greatest opportunity for social enterprise to become part of the mainstream economy. Equally, we must ensure that whatever develops out of the present frenzy of activity does not end up hampering our society in the long run. But, in the long run, as Keynes said, we are all dead, so we would be best served pressing on, mindful of the risks. The rewards are too great to ignore.