What is impact?

by Connor Schoen

While the investing world at large has spent centuries refining their methods and defining their key approaches to analysis, impact investing specifically is still at its early stages of growth; thus, metrics for defining this term have remained elusive and hard to quantify.

“Unpacking the Impact in Impact Investing” provides a useful framework for considering what factors should guide the decisions of prosocial investors; namely, coauthors Paul Brest and Kelly Born of the Stanford Social Innovation Review explore the complexity of the term “impact” and how it translates into investment decisions. Ultimately, Brest and Born udefine impact on the basis of additionality—the idea that the value of your investment is predicated on its ability to add social benefit that wouldn’t be there otherwise.

In “What Are We Talking About When We Talk about Impact,” C. Wallman-Stokes, K. Hovde, C. McLaughlin, and K. Rosqueta bring in a new idea that complicates this additionality idea. The authors argue that “what we talk about when we talk about impact” depends on who is talking—and who is listening!” Thus, depending on whether you talk to foundations, nonprofits, individuals, or another group, you will get a different answer as to what exactly “adding social benefit” means.

Overall, however, both papers agree that impact is measurable and definable. Just like there are debates between what financial metrics indicate and which are most important, a continued discourse as to what is the core foundation of “impact” is a necessary step in the development of this field.