An evidence-based way to estimate social and environmental returns
Matt Chase
Summary. Impact investing—directing capital to ventures that are expected to yield social and environmental benefits as well as profits—provides investors with a way to “do well by doing good.” But whereas the business world has tools for estimating a potential investment’s financial yield, it lacks them for estimating social rewards in dollar terms. Now the Rise Fund and the Bridgespan Group have developed what they call the impact multiple of money (IMM) to demonstrate the value of putting impact underwriting on the same footing as financial underwriting. In this article they explain their six-step process for calculating it: (1) Assess the relevance and scale of a potential product, service, or project. (2) Identify target social or environmental outcomes. (3) Estimate the economic value of those outcomes to society. (4) Adjust for risks. (5) Estimate terminal value. (6) Calculate the social return on every dollar spent. The IMM, they write, “offers a rigorous methodology to advance the art of allocating capital to achieve social benefit.”
Post
Post
Share
Annotate
- Save
- Get PDF
Buy Copies
Idea in Brief
The Problem
Although the business world has universally accepted tools for estimating a potential investment’s financial yields, no analogue exists for evaluating hoped-for social and environmental rewards in dollar terms.
The Solution
The Rise Fund and the Bridgespan Group have developed a methodology for estimating the financial value of the social or environmental good generated by impact investments.
How It Works
The six-step process culminates in a number—called the impact multiple of money, or IMM—that expresses social value as a multiple of the investment.
As concerns about scarcity and inequality become increasingly urgent, many investors are eager to generate both business and social returns—to “do well by doing good.” One avenue is impact investing: directing capital to ventures that are expected to yield social and environmental benefits as well as profits. But there’s a problem: Although the business world has several universally accepted tools, such as the internal rate of return, for estimating a potential investment’s financial yields, no analogue exists for evaluating hoped-for social and environmental rewards in dollar terms. Forecasting gains is too often a matter of guesswork.
A version of this article appeared in the January–February 2019 issue (pp.102–109) of Harvard Business Review.
Read more on Business and society or related topics Corporate social responsibility and Finance and investing
CA Chris Addy is a partner at the Bridgespan Group, a global social-impact advisory firm.
MC Maya Chorengel is a senior partner at the Rise Fund, an impact fund that is part of the private equity firm TPG Growth.
MC Mariah Collins is a manager at the Bridgespan Group.
ME Michael Etzel is a partner at the Bridgespan Group.
Post
Post
Share
Annotate
- Save
- Get PDF
Buy Copies
Read more on Business and society or related topics Corporate social responsibility and Finance and investing
