49th St. Gallen Symposium "Capital for Purpose": 8–10 May 2019


Capital for Purpose and impact measurement – a critical alliance

Capitalism has had its share of victories. Technological progress, higher living standards, more meritocratic societal systems are but a few of its achievements. Yet today, capitalism is increasingly seen as a problem rather than a solution. Exacerbating income inequality, unsustainable exploitation of natural resources and increasing concentration of market and political power in the hands of a few behemoth companies are bolstering this view. Capitalism needs to change. And capital for purpose is one of its few redeeming options. 

Capitalism needs to change.

The ambitious vision of capital for purpose was aptly summarized by Sir Ronal Cohen1. A new generation of entrepreneurs becomes billionaires by solving homelessness or child malnutrition. Financial investments capitalize on their ability to solve the education crisis today by saving governments billions in unemployment related costs decades later. Multinationals will see their share price rise and fall based on social and environmental returns as well as profit. As trillions are inherited by a new generation, impact investment products will become the rule rather than the exception. In short, capitalism will be again the very incubator of the enlightenment ideals of reason, science, humanism and progress2.

But, as Hamlet would say, “there is the rub” as this vision seems too good to be true. Even if we assume that the world is indeed committed to an “impact economy” – a big if – the critical step is to create credible standards for impact measurement that enable consumers, pension savers, philanthropists, investors, entrepreneurs, social sector organizations, governments and big company leaders to know whether and how much impact their actions have. This is far from easy. The difficulty of measuring the impact of the billions of dollars spent in humanitarian and development aid in the past decades attest to that. 

This vision seems too good to be true.

A synthesis of methodologies from private and social sectors as well as academia is required to meet this challenge. One example is the impact multiple of money (IMM) by the TPG Rise Fund3. It uses a private sector lens to estimate how many services will be sold by a company, say eye surgeries. Then it uses the theory of change approach developed in the social sector to understand the potential impact of these services, say the probability that the surgery can cure blindness. Crucially, it evaluates the quality of academic evidence that links the two. Randomized control trials (RCTs), the gold standard in academia for impact evaluation, provide greater confidence that impact targets will be reached, but lower quality evidence such as observational studies should make for more conservative estimates. For example, we might have evidence that 80% of surgeries cure blindness, but if our evidence is weak we should be more conservative and assume perhaps only 20% or even less.

Service providers such as Bridgespan and ImmerLearn must support established players in the development of actionable and credible impact measurement practices. Impact investors will need sophisticated theory of change design, academic evidence review and data analysis to maximize the impact of individual investments. Multinationals will require guidance on what academic research to fund when evidence is thin or missing. NGOs will need help in proving impact to donors and sophisticated financial investors when entering consortia to deliver on social impact bonds. The bad news is that we have a long way to go; the good news is that the path to victory is becoming increasingly clear.

The bad news is that we have a long way to go.

Sources mentioned by the author:

1 Cohen, “A Guide to the Impact Revolution”, Accessed December 28 2018

2Pinker, “Enlightenment Now”, Chapter 2, 2018

3Addy, Chorengel, Collins, Etzel “Calculating the Value of Impact Investing”, Harvard Business Review, 2019 (forthcoming)