Impact investing refers to investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. There has been growing interest in recent years in quantifying the value created by such investments. This article will analyze methodologies for calculating impact value, including the Impact Multiple of Money (IMM) approach developed by The Rise Fund and Bridgespan Group. It will also look at sample case analyses, like the partnership between Rise Fund and consulting firm Bridgespan to bring financial rigor to assessing social and environmental returns. By estimating impact upfront, social investors can better evaluate opportunities and set minimum return thresholds.
SROI provides a principles-based framework for measuring non-financial value
One methodology for quantifying impact value is Social Return on Investment (SROI). As defined in the sample Zhihu article, SROI is a principles-based method for measuring non-financial value such as environmental or social value not captured by traditional financial accounts. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance investment performance. For example, impact investors like Rise Fund use qualitative assessments to screen potential investments and only put opportunities with measurable potential impact through SROI or IMM analysis. The SROI network provides guidelines on applying this methodology which involves stakeholder engagement, impact mapping, monetization of outcomes, discounting future returns, and calculation of final SROI ratio.
IMM estimates projected social/environmental return per dollar invested
The Impact Multiple of Money (IMM) is another methodology highlighted in the sample content from Harvard Business Review. IMM aims to estimate the likely financial value per dollar invested in social and environmental good. Rise Fund and Bridgespan collaborated to develop this metric and apply it to Rise Fund’s impact investments. They calculate IMM before committing any money, setting a $2.50 minimum social return threshold for every $1 invested. While not trivial, focusing IMM analysis on suitable products/services with measurable impact can provide invaluable insight. Companies adopting this standard can determine their own minimum IMM return rate based on social impact objectives and risk tolerance.
Sample case: Partnership enabled rigorous impact analysis
The Harvard Business Review article provides a real example of using rigorous financial techniques to assess social and environmental impact. Impact investing firm Rise Fund, managed by TPG Growth, worked with social impact advisor Bridgespan Group. Through trial and error and leveraging external experts, they created the IMM methodology for estimating impact value relative to dollars invested. This enabled Rise Fund to evaluate opportunities and meet its mandate of generating market-rate returns alongside measurable positive outcome. By setting an IMM threshold, Rise Fund could screen potential investments, supporting decisions in line with its dual objectives of profit and purpose. This case shows how impact investors are innovating to quantify impact, treating it with same rigor as financial returns.
Methodologies like SROI and IMM enable monetization of social and environmental value created by impact investments. By quantifying impact alongside financial return, impact investors can better evaluate opportunities, set thresholds aligned to their goals, and demonstrate tangible positive outcomes across both financial and non-financial dimensions.