1

IMPACT MANAGEMENT PROJECT

Australian Perspectives

September 2017

2 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

Introduction The Impact Management Project

As more disciplines than ever find themselves thinking about, and trying to deliver, positive impact for people and the planet, the need for a common set of understandings for managing that impact has taken on increased relevance.

The Impact Management Project

A diverse set of global funders and partners have been convened through the Impact Management Project with the aim of producing a convention for understanding the impact goals of different groups and finding common language to describe impact goals and performance across the value chain.

The convention is not intended to be a specific framework, nor a standard that everyone must adhere to, nor a single measurement approach. Rather, the convention is aimed at providing a common foundation to help diverse stakeholders to work together to deliver significant positive effects for people and the planet, and to reduce the negative.

The Impact Management Project is a first wave of work toward greater convergence, across jurisdictions, sectors and disciplines, in how we bring shared fundamentals to impact goals and expectations. It is intended this will be a dynamic platform that will continue to evolve through practice and dialogue.

As part of this process, and to help build and test this emerging consensus in a local context, Impact Investing Australia (working with The Social Yield) tested the emerging consensus against the specific perspectives, aspirations and concerns of the Australian impact community.

Australian perspectives

To capture the views of Australian stakeholders, Impact Investing Australia convened a series of webinars to review the emerging consensus with participants and to facilitate questions and comments. A total of six webinars were convened between 14 and 22 June, 2017. These included five sessions segmented according to industry participation—Asset Owners; Intermediaries; Government and Policy; Impact Providers; and Research and Evaluation—as well as one general session.

A total of 60 participants took part in the webinars. While the sample size was not large, the diversity of the participants enabled a series of multifaceted discussions in which the key themes of the project were considered against Australian experiences and aspirations.

For some participants, it was their first introduction to the Impact Management Project and an opportunity to hear more about the objectives and what is developing globally. For others, it was an opportunity to test the developing convention against work they have been doing, Therefore, the depth and range of the discussion during the webinars varied. A small number of individuals provided additional feedback via email, which is also incorporated into this report.

All of the consultation was conducted under Chatham House rules. Feedback in this report has been anonymised, consistent with the Impact Management Project practices to date.

The grey boxes through the text indicate how the input and feedback from Australian participants has been incorporated and reflected in the convention, with a focus on areas of emerging global consensus.

Authorship

This report was written in June 2017 for Impact Investing Australia by EJ Shu, Director, The Social Yield, and Rosemary Addis, Chair, Impact Investing Australia.

The Impact Management Project and this report is licensed under the Creative Commons Attribution No Derivatives 4.0 International License, which allows the copying and distribution of this material so long as no changes are made and credit is given to the authors.

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 3

Summary Australian perspectives

Consultation with the Australian impact community revealed broad support for the project’s emerging consensus—both in terms of the attempt to reach a common ‘language’ of impact, and signposting frameworks for how that impact might be realised and measured. Commentary on specific aspects of the project has been organised under four themes.

Impact Goals

Feedback from the Australian impact community broadly supported a plain language approach to expressing impact goals. Participants highlighted the need to achieve clarity where impact investing fits within the broader convention, while still recognising a range of investor contributions and options. Not all actors are able to occupy a place in every part of the impact investing universe—participation depends on the particular relationship between impact goals and the type of capital available.

There was emphasis on ensuring that shared language is fit for purpose without creating additional complexity or introducing new terminology. In addition, many saw scope to improve the ways in which the experiences, aspirations and capacities of beneficiaries are authentically tested and reflected when setting impact goals.

Risk

Not all segments of the Australian impact community spoke about risk. Those that did reinforced the value of clarifying the nature of particular risks. Some perceived that the scope of risk described by the project was too narrow, and proposed a range of additional considerations. To address this perceived gap, there may be opportunities to highlight that ‘impact risk’ is just one type of risk within a broader risk landscape.

Information

Information collection, analysis and use were regarded as important themes by the Australian impact community. However, many had questions about what information to seek, and how best to collect and understand information about impact in a timely and cost-effective manner.

Impact providers—as the key delivery agents for impact—were viewed as having a core responsibility for impact measurement. At the same time, it was acknowledged that achieving high quality impact measurement is resource-intensive, and that funding models ought to account for this additional cost.

It was also acknowledged that different stakeholders have different questions and data needs, and that there are many lenses through which impact information can be analysed and interpreted.

The question of data aggregation for the purpose of performance comparison also remained elusive for many participants, both in terms of its potential role in the sector and in how to think about comparison.

Over time, Australian practitioners will collectively establish a threshold for what qualifies as an impact investment in their local or national context.

Through this project, global practitioners have agreed that what will likely distinguish impact investing from “other” investing will not be the labels they use, but demonstration that they drive 1) important positive outcomes, 2) deeply, enduringly and at scale, 3) for underserved people.

In other words, impact investments are helping tackle our most pressing social and environmental challenges.

Common impact risk factors are now summarized here for further refinement and management within the Australian context.

4 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

Impact Management

Fewer people in the Australian consultation discussed the role of information collection and analysis across the entire impact investment cycle.

There is an opportunity to clearly communicate the idea that that information collection and analysis is iterative and continuous throughout the impact management cycle.

Building on this feedback, Acumen and New Philanthropy Capital have published case studies to provide initial insights into how this plays out in practice. Phase 2 will focus on practical training and templates to address this issue, including enterprise dashboards to aggregate and make decisions at the organisational level, and impact statements for consideration by investors and funders.

“The framework matches our work and the language is familiar... Shared language is so important for consistency and giving confidence in a new industry.”

—Intermediary

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 5

Detailed findings

The following section provides a detailed overview of the consultation findings.

General reception There was strong appreciation for the Impact Management Project and the structure it offers for expressing impact goals and fundamentals. At times, however, different groups found it difficult to locate ‘their’ position in the frameworks. While this may suggest further opportunities to bring all parties along in a more deliberate way, these reactions may also show participants in a diverse ecosystem figuring out how to ‘cross over’ to different perspectives and positions. The ability for people to see themselves within the convention is expected to sharpen as the project shares stories about how the convention is being used.

Case studies There was nearly universal support for including case studies alongside the frameworks. It was felt that translating the emerging consensus into concrete terms would help make it more practical for users.

A note about timing

At the time of these Australian consultations, the Impact Management Project consensus remained in development, and new iterations were emerging on a frequent basis in response to feedback from this consultation and other partnerships. Some of the commentary received from the Australian community had already been incorporated into the newer iterations by the time the webinars were completed. The commentary outlined here has been provided in response to two versions of the convention, dated June 7 and 15 respectively.

6 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

IMPACT GOALS When we talk about impact, do we understand each other?

Feedback from the Australian community was focused on achieving clarity around impact investing while still celebrating a multiplicity of approaches, on convergence toward a shared language, and on the ways we understand and involve the beneficiaries of impact.

Beneficiaries

Participants underscored the importance of putting the beneficiary at the centre of analysis—both for the design (or co-design) of interventions and in the assessment of delivered impact. Commentary pointed to the potential power imbalance in conceiving, designing, implementing and measuring impact. In other words, there is a question about ‘Who decides?’ what is needed, and ‘Why?’ an intervention is being designed and delivered.

In regard to the emerging consensus around lived experience, it was noted that potential beneficiaries were not always able to determine what kinds of interventions might have a significant effect on the outcomes they care about. This was framed in terms that, for various reasons, some beneficiaries lack capacity to self-advocate, or in terms of ‘unconscious ignorance’ among very vulnerable target groups.

Similarly, participants noted that a cohort could be well-served or ‘over served’ with programs and other interventions, yet they may still not experience a good life or improved outcomes. High quality evidence is required to determine the needs and preferences of potential beneficiaries.

A shared language

While the ambition to identify a shared language around impact was applauded, there was a question about whether this objective would simplify language or create new ways of talking about impact. Greater clarity was sought around some terminology, e.g. ‘signalling norms’, with regard to whose norms to what effect; ‘engage actively’, with regard to what activities this implies; and ‘sub-commercial’ as well as ‘flexible capital’, in terms of what this may include.

While the convention is intended to be expressed in plain language that different actors in the ecosystem can use, some participants noted the gap between that language and that which they currently use in their own organisations and processes. Whether these actors will be able to translate this language for their own purposes is yet to be tested.

The extent to which individuals have a perspective on their own lived experience or the choices they make, was tested through focus groups around the globe.

The convention was built based on insight from these focus groups and the experience of the Australian participants on how people express the impact they expect and the risks they are willing to take.

The Australian participants’ desire for further clarity around some terminology—e.g. ‘signal’, ‘engage actively’, and ‘flexible capital’—was integral to the project’s development.

Work with UBS on model portfolios helped bring the conceptual to the practical, and we further explored what language works for understanding an investor’s contribution. Detailed descriptions can now be found on page 6 of this edition of Investor’s Perspective and on the following page of this report.

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 7

Defining impact investing

It was considered important that impact investing be more clearly delineated within the broader impact management framework shown in the matrix.

Greater clarity was sought on how impact investing relates to a broader canvas of investment activities, such as ESG, CSR, ethical investments or other kinds of asset allocation that might be ‘impactful’ but do not feature the same degree of intentionality.

Illustrative vs normative

The mapping of impact goals within a range of the options—and the use of a continuum of impact intentions—was viewed as helpful in describing a diversity of impact initiatives and approaches.

However, caution was expressed in relation to the resemblance of the matrix to a performance management tool. In an old version of the matrix, there was an inference that some positions on the impact matrix appear more desirable than others based on their placement toward the “top right.”

12 categories of investable opportunity

Through this project, global practitioners have agreed that impact investing will not be distinguished from ‘other’ investing by applying labels, but by demonstrating that it drives 1) important positive outcomes, 2) deeply, enduringly and at scale, 3) for underserved people.

In other words, impact investments are helping tackle our most pressing social and environmental challenges and differentiate themselves based on performance. This can now be observed based on the dimensions and is outlined in more detail here.

The matrix has been re-arranged to address this point of feedback from Australian practitioners, resulting in 12 categories of opportunity.

8 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

In particular, asset owners and managers noted constraints in their flexibility to accept concessional returns or provide credit enhancement. There was a preference for ensuring the relationship between a range of impact goals and different types of capital be recognised.

10 categories of investable opportunity for institutional investors

The matrix below narrows this down to the 10 categories of opportunity available to institutional investors, based on their typical financial goals and constraints.

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 9

RISK

The likelihood that impact will be different than expected

Not all segments of the Australian impact community spoke about risk, but commentary reinforced the value of precision about the type of risks and their effects.

Types of risk

In addition to the general wish to see more case studies, respondents from the government group were especially interested in populating these case studies and investment classifications with additional detail on risk and addressing a broader range of risks. This group identified a wide range of additional risks to the impact risk types featured in the consultation deck, including reputational risks, policy and political risk, risk to innovation, and risks to clients associated with client vulnerability and duty of care.

This desire for a broader view of risk suggests there may be value in providing greater context around ‘impact risk’, for example by setting it in the context of policy risk and the types of risk. This could be achieved by showing impact risk in the context of the range of risks described in the Bridges Impact+ and Bank of America Merrill Lynch publication, Shifting the Lens: A De-Risking Toolkit for Impact Investment. Linking the consideration of impact risk in the Impact Management Project to this broader typology may help stakeholders to see the other dimensions of risk reflected as part of the overall management process, then focussing in on dimensions of impact risk or exploring the relationship of different risks to impact.

This insight from Australia helpfully summarizes the variations of risk factors that local practitioners often encounter. We have a long road ahead in truly institutionalizing impact risk management processes, and look forward to hearing stories about how this is happening in practice in the private and public sectors.

“The risk bit is really important and the newer

piece of the puzzle for us”

—Intermediary

10 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

INFORMATION

What information we need, and how we collect and use it for impact management

Information collection, analysis and use were important themes to the Australian impact community. While meaningful data is highly valued, questions and tensions remain about how what information to seek, and how best to collect and understand information about impact.

Collecting information

There was strong support to see a commitment to more robust and accountable impact measurement. It was emphasised that information collection needs to be considered early, and that the choice of measures ought to be tailored to the most pressing questions and aligned with stakeholder interests.

There was the perception that those responsible for designing and delivering the intervention should be required to measure their impact well. This was associated with their primary role of these agencies as key delivery agents of interventions capable of creating harm as well as good.

Achieving a high level of quality in impact measurement was viewed as a challenge, particularly in terms of going beyond outputs to outcomes (and understanding causal links), and in ensuring that sufficient dialogue is facilitated between investors, investees and beneficiaries.

There are also challenges in relation to timescale, where the lifecycle of the investment (and its data collection activities) does not extend to the lifecycle of the impact creation. For some participants, it was important to have high quality information about prospective efficacy before implementation.

It was acknowledged that high quality impact measurement comes with a cost, and that ideally, resources for impact evaluation will be built into the funding model. There may be an opportunity to provide some further guidance on targeting information collection, particularly given the resource intensity of collection.

Types of information

With regard to where impact data collection efforts should be focused, there was no clear consensus on whether it should be on areas where there is more certainty around impact creation, or where there is less certainty.

Some stakeholders, such as asset managers, prioritised data about more certain aspects of impact to inform a compelling asset ‘story’ to their investors. Other groups, such as those in government or evaluation, noted that the inherent risk of harm in any intervention meant there was a need to collect information on less certain outcomes.

Impact analysis

There was appreciation for the way in which the emerging consensus differentiates between data collection and analysis. It was acknowledged that more data is not necessarily better, and that data collection should be a selective process, focused on specific questions.

It was noted that data will always be analysed through a particular ‘lens’, and while there is value in applying different lenses, it will also be important for the impact investing space to deliver streamlined and comparable analysis that provides investors with the necessary confidence for decision-making.

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 11

Aggregation

The question and role of aggregation proved to be the most difficult discussion point in the consultations. There was a sense that participants were not able to easily speak to this issue, and that further opportunities to consider aggregation may be required. For those participants who engaged with the topic of aggregation, there was a view that despite its importance, there were still several problems to resolve, including the risks of double-counting data

when taking an industry view, the difficulties in comparing like with like, and even the desirability of reducing impact data to simplify comparison. It was also noted that just as the financial market includes a wide variety of asset types, so too are there different asset ‘classes’. As an alternative to considering these in aggregation, they may be a relevant consideration for thinking about the interplay between financial and impact goals.

“Investors need to get a level of confidence at some point.

It often boils down to the quality of evidence... How do

we draw out what’s important?”

—Evaluator

12 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

IMPACT MANAGEMENT

Impact management is a continuous process of learning and improving The impact management cycle describes a comprehensive process for generating significant positive effects for people and planet. Situating information collection in the impact management cycle

The topic of information was addressed during the second half of the consultation. Perhaps because of this, there was considerable focus in the webinars on ex-post evaluation—i.e. addressing the question of, ‘Did the impact intervention work?’. With the exception of participants with an interest in problems of program design, there was less discussion around the role that information might play at different points in the impact investment cycle. In order to communicate the idea that information collection and analysis is embedded throughout the impact investment cycle, we found value in adding it as a graphic element to the triangular diagram.

Diagram: Relationship of impact information to management process

Collect and use Information about impact

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 13

APPENDIX: Session feedback by theme

Asset Managers

n=12 Intermediaries

n=18 Govt and Policy

n=7 Impact Providers

n=6 Research and Evaluation

n=5 General session

n=12

Impact Goals Some language needs further refining e.g. ‘signalling norms’ with regard to whose norms and to what effect.

Similarly, ‘engage actively’ requires further unpacking and clarification.

Re. the matrix showing investor contributions, challenged the idea of an evolution or progression across the grid, as the interplay between impact goals and type of capital can present particular constraints.

Suggested distinguishing columns to show market differences (i.e. listed equities vs private). Suggested different versions of the construct be developed for different investors, with language to suit.

Greater clarity was sought on how impact investing relates to the broader canvas of activities, and how the subset of impact investing sits within the broader impact management framework as shown in the matrix.

There was a view that those prepared to provide concessional capital wouldn’t want to represent this as ‘sub-commercial’, rather as serving a different purpose.

The full spectrum of negative and positive effects as presented on the matrix was a broader view than some actors are accustomed to taking.

At the heart of impact investing is life change for the individual—the beneficiary should be the centre of analysis.

Questioned whether beneficiaries always know what programs or services would bring better life outcomes.

There may be confidence around the problem, but not around the solution.

The setting of impact goals typically relates to one of two approaches: (i) can we do it better? or (ii) identifying market failure.

Tended towards viewing investors according to intentionality rather than contribution—felt there was a broader spectrum of types.

Re. language, ‘flexible capital’ can mean a lot of things (e.g. liquidity), and may need further clarification.

Strong appreciation for shared language in the industry, from investors to those on the ground delivering and evaluating impact. Language considered to be uncomplicated and clear.

The Why is important in setting impact goals.

Beneficiaries’ voices are critical in defining impact, in co-designing interventions, and in assessing whether impact has been delivered.

Questioned whether beneficiaries always know what programs or services would bring better life outcomes.

Stakeholder engagement is critical, yet costly. Guidance is needed around proportionality re. goals in relation to resourcing.

Similar to the asset managers, saw the matrix on contributions as potentially serving a performance management purpose.

Question about jargon and whether this project was simplifying or creating new ways of saying things.

Concern about implementation issues, specifically around responding to what a potential beneficiary is wanting. Raises questions of power and who decides.

14 IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES

Asset Managers

n=12 Intermediaries

n=18 Govt and Policy

n=7 Impact Providers

n=6 Research and Evaluation

n=5 General session

n=12

Impact Risk Risk is regarded as important, and a new challenge.

More examples of risk typologies sought in case studies.

The risk section was viewed as having significant gaps, and several alternative types of risk—including operational and policy and political risks—were identified.

Information Seeking impact data that allows the telling of the impact ‘story’ to investors, i.e. focusing on information with a higher level of certainty.

Assessing additionality is considered difficult but important.

It is more difficult to get reporting post-investment—information collection needs to be considered early.

Choice of measures will respond to the kind of impact investors wish to see, or will be determined by the asset manager.

Collecting meaningful data (outcomes vs outputs) is a challenge.

Organisations should be measuring impact well, and if they’re not doing so then they should be required to invest in better data collection and reporting systems.

Impact accountability requirements should be no different to accounting/auditing.

Different questions and different evidence streams are needed depending on stakeholder and perspective.

Important to target the right problem, and need to understand the efficacy of a likely solution before implementation.

Information is also needed in relation to value for money.

Key questions: What is the likelihood of achieving that benefit? Are these tools appropriate? Is the problem sufficiently large? If we are going to incentivise, would it achieve the outcomes

The Why is important in data collection, to understand the links between outcomes and impacts.

Given that impact interventions had capacity to do harm as well as good, responsibility for evaluation should rest with the impact provider.

BUT these requirements for evaluation should be accounted for in the funding model.

Given the availability of data, there is a need to place the right ‘lens’ over that data, to be selective.

It is important to value different lenses for

Commitment to impact measurement varies, ie. may be different for those investing ethically vs acquittal based funding from govt or philanthropy.

There is a desire for impact investing space to take measurement more seriously in order to improve the quality of evaluation.

Cost is a key challenge to this, re. facilitating dialogue between investors, investees and beneficiaries.

More data is not necessarily better—we should start with the questions we want answered.

IMPACT MANAGEMENT PROJECT: AUSTRALIAN PERSPECTIVES 15

Asset Managers

n=12 Intermediaries

n=18 Govt and Policy

n=7 Impact Providers

n=6 Research and Evaluation

n=5 General session

n=12

govt is looking for?

Collection of data against long-term indicators is not always compatible with the lifecycle of the investment and/or impact delivery model, thus creating additional complexity around evaluation.

There was appreciation for distinguishing data from the analysis and decision making.

interpreting data, however there is also value in generating data that enables comparison.

The data and analysis that is fit for purpose in impact investing will be that which provides the necessary level of confidence for investor decision-making.

Impact Management

Aggregation is important but there are risks of double- and triple-counting when taking an industry-wide view.

Re. comparison problem in aggregation, it is too difficult to compare like with like, so has to be case by case. This may change as practice builds and more product enters the market.

The reduction of impact data to a common denominator seen as unnecessary. Acceptable to have different impact classes, similar to other investing classes.