How to Draw the Bottom Line(s): Impact Management in 2004

Imagine, if you can, a world where “The Facebook” just went online, and you would be insane NOT to bedazzle your jeans. That world seems far away, as things have changed hugely since 2004. Impact management, which was just beginning to find itself in 2004, has also changed. However, to understand the field today, it is important to understand where impact management came from and what practices looked like circa 2004. The “Double Bottom Line Project Report: Assessing Social Impact in Double Bottom Line Ventures” is a wonderful snapshot of these early impact management practices, as it may have been the very first measurement methods catalog for impact investors.

            Targeting an audience of both social investors and entrepreneurs, the Catalog provides summaries of the practices a range of leaders were using to manage impact, as there were not yet established standards in the field. A quick scan of these practices reveals a lack of coordination or common understanding of basic definitions. For example, each enterprise had a different definition of the term ‘impact,’ which could make it difficult to actually manage the stuff! The report’s coauthors put together the Impact Value Chain below to help universalize these key definitions; today’s shared fundamentals of impact reflect the evolution of this early stake in the ground.  

In 2004, there were a number of different investors and double bottom-line companies (companies concerned about impact), ten of which were profiled in the Catalog. Though there was plenty of overlap in both style and function among the practices each used to assess impact, each had a different level of feasibility (”the extent to which [a practice is] useful and applicable in the strenuous environment of a growing venture,” including cost and person-hours from one year to the next), and credibility (how thorough and trustworthy the practice is). 

The practices in the catalog were grouped three ways: those that track outcomes by benchmarks, those that use a rating system, and those focused on cost-benefit analysis: 

Impact Tracking The enterprises in the first grouping—Acumen Fund Scorecard, Social Return Assessment, Ongoing Assessment of Social Impacts, and Poverty and Social Impact Analysis—tracked short and long term outcomes so that investors could manage their impact to reach certain ambitious-yet-feasible goals they have set for themselves. The outcomes that these enterprises track, however, are entirely subjective based off of their own definitions of ‘impact'. For example, the Social Return Assessment approach focused mainly on tracking the number of jobs the enterprise created, which is a good start, but does not address other potential outcomes, both positive and negative that may be created.

Impact Rating The second grouping consisted solely of the Atkisson Compass Assessment for Investors method. This practice used a point scale rating system based off of a compass—North=nature, South=society, East=economy, West=well-being, and synergy (the relationship between the cardinal directions). A company would receive a rating in each of these categories, which would then be compared to other companies to see where their strengths and weaknesses lie. For example, investors might have use these ratings to find which company has the best, most efficient energy usage within a certain sector. 

Cost-Benefit The last group, comprised of Social Return on Investment and Benefit-cost Analysis, expressed social impact in monetary terms, “combining the tools of benefit-cost analysis, the method economists use to assess nonprofit projects and programs, and the tools of financial analysis used in the private sector.” The three major tools of this type of analysis are measuring net present value, benefit-cost ratio, and internal rate of return.

There were many risks to the credibility of these early practices stemming from weak social accounting frameworks: differing definitions of ‘impact,’ seemingly random selections of inputs/output/outcomes unrelated to material impact, and overall weak research designs. However, these practices did lay the groundwork for modern impact management. 

Today, the Impact Management Project (IMP) is providing “a forum for building global consensus on how to measure, report, compare and improve impact performance,” and has produced a more refined, consensus-based definition of impact, but is still based on the approaches evidenced by these early practices. For example, according to the IMP, modern impact managers still track specific information related to certain impact goals (Impact Tracking’); use rating systems to benchmark impact performance (‘Impact Rating’), and compare social and environmental benefits to financial cost (‘Cost-Benefit’), just like in the three groupings above. 

When one understands how impact management looked when it began, and observes what has remained the same and what has changed, one’s confidence in the durability and value of today’s impact management lingo and approaches grows. 

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In 2004, there were a number of different investors and double bottom-line companies (companies concerned about impact), ten of which were profiled in the Catalog. Though there was plenty of overlap in both style and function among the practices each used to assess impact, each had a different level of feasibility (”the extent to which [a practice is] useful and applicable in the strenuous environment of a growing venture,” including cost and person-hours from one year to the next), and credibility (how thorough and trustworthy the practice is). 

The practices in the catalog were grouped three ways: those that track outcomes by benchmarks, those that use a rating system, and those focused on cost-benefit analysis: 

Impact Tracking The enterprises in the first grouping—Acumen Fund Scorecard, Social Return Assessment, Ongoing Assessment of Social Impacts, and Poverty and Social Impact Analysis—tracked short and long term outcomes so that investors could manage their impact to reach certain ambitious-yet-feasible goals they have set for themselves. The outcomes that these enterprises track, however, are entirely subjective based off of their own definitions of ‘impact'. For example, the Social Return Assessment approach focused mainly on tracking the number of jobs the enterprise created, which is a good start, but does not address other potential outcomes, both positive and negative that may be created.

Impact Rating The second grouping consisted solely of the Atkisson Compass Assessment for Investors method. This practice used a point scale rating system based off of a compass—North=nature, South=society, East=economy, West=well-being, and synergy (the relationship between the cardinal directions). A company would receive a rating in each of these categories, which would then be compared to other companies to see where their strengths and weaknesses lie. For example, investors might have use these ratings to find which company has the best, most efficient energy usage within a certain sector. 

Cost-Benefit The last group, comprised of Social Return on Investment and Benefit-cost Analysis, expressed social impact in monetary terms, “combining the tools of benefit-cost analysis, the method economists use to assess nonprofit projects and programs, and the tools of financial analysis used in the private sector.” The three major tools of this type of analysis are measuring net present value, benefit-cost ratio, and internal rate of return.

There were many risks to the credibility of these early practices stemming from weak social accounting frameworks: differing definitions of ‘impact,’ seemingly random selections of inputs/output/outcomes unrelated to material impact, and overall weak research designs. However, these practices did lay the groundwork for modern impact management. 

Today, the Impact Management Project (IMP) is providing “a forum for building global consensus on how to measure, report, compare and improve impact performance,” and has produced a more refined, consensus-based definition of impact, but is still based on the approaches evidenced by these early practices. For example, according to the IMP, modern impact managers still track specific information related to certain impact goals (Impact Tracking’); use rating systems to benchmark impact performance (‘Impact Rating’), and compare social and environmental benefits to financial cost (‘Cost-Benefit’), just like in the three groupings above. 

When one understands how impact management looked when it began, and observes what has remained the same and what has changed, one’s confidence in the durability and value of today’s impact management lingo and approaches grows.