We set financial goals and impact goals based on our understanding of the impact likely to be experienced by people and the planet, as well as our own intentions and constraints.

How do we set impact goals if we have an existing enterprise, or portfolio of enterprises?

Many of us start setting goals when we already have an existing enterprise or portfolio of enterprises. We:
  • Collect, analyse and assess data across the five dimensions of impact, so that we can understand which material effects people and planet experience and/or are likely to experience by engaging with the enterprise or portfolio of enterprises

  • Set goals to try to prevent material negative effects
  • Decide, based on our intentions, constraints and financial goals, whether to set goals to increase material positive effects

How do we set impact goals if we are starting from scratch?

If we are creating a new enterprise, or new portfolio of enterprises, our intention guides how we set goals from the very beginning. For example, if our intention is to tackle a specific social or environmental challenge, we start by analysing available data about the cause of the challenge. Which groups of people (who) are not able to achieve which outcomes (what)? How many people are not able to achieve the outcomes, and how deep a change do they need to experience if they are to achieve them (how much)? What is the market or ecosystem currently doing to help those people to achieve those outcomes and can we contribute (contribution)? Are there approaches with a strong track record of succeeding or do we need to take risks and try new models (risk)?
This analysis allows us to set initial impact goals across the five dimensions. Combined with our financial goals, these guide our design of an enterprise, or selection of a portfolio of enterprises, that have the greatest potential to achieve those goals. Once we are dealing with a real enterprise or portfolio, we can set more precise goals, just as those who start with existing enterprises or portfolios do.
EXAMPLE: If we intend to tackle the challenge of obesity, we could start by trying to understand the causes of this societal issue, and therefore who is likely to be most affected. This analysis may show that low-income families in certain geographies (who) are most at-risk of obesity globally. We then might seek to understand what strategies have proven most effective in delivering the physical or mental health outcomes (what) that these people need, at the appropriate rate, depth and scale (how much). We may choose to create a new enterprise (or invest in a portfolio of enterprises) which replicates delivery of a change that is already proven to drive the desired impact - such as improved diet - or we may trial new strategies that have less substantial evidence bases, like social prescribing for the management of long-term health conditions. These choices depend on the impact (risk) we’re willing to take, and the (contribution) we’re seeking to make.
If we are trying to manage impact because we want to avoid material negative effects - like mitigating financial risk or behaving more responsibly - the goal-setting process will look different. We might set a goal to try to contribute to at least neutral outcomes (what) that are on par with, or better than, others in our industry (contribution). Our goals across the (who) and (how much) dimensions might then vary.
This diagram shows how our intentions translate into different goals across the five dimensions of impact.
Intentions (2) v2@1.5x Created with Sketch. Avoid harm Help tackle specific pressing challenges Avoid harm “I want to help tackle climate change” “I want to help tackle the education gap” Have a positive effect on people and the world “I want to support enterprises that have a positive effect on the world to sustain long-term financial performance” “I want a world where all enterprises try to have a positive effect on society” “I have regulatory requirements to meet (e.g. I have to cut my carbon emissions)” “I want to behave responsibly” "I want to mitigate risk" RISK WH A T CONTRIBUTION HOW MUCH WHO Specific important positive outcomes Deep and/or For many and/or Long-term Specified and underserved Likely better Various Specific, material, positive effects for people and the planet + Try to prevent material negative effects Various Various Likely same or worse Various Important negative outcomes May or does cause significant negative effects Important positive outcomes Various Various Likely same or better Various Positive effects for people and the planet + Try to prevent material negative effects Various Various Likely same or better Various At least neutral outcomes Try to prevent material negative effects for people and the planet HIGH LEVEL GOALS GOALS ACROSS DIMENSIONS INTENTIONS Don’t care “I choose to exploit negative impact for financial gain” “I am aware of potential negative impact but choose to be agnostic”

Resources

What if our impact goals conflict?

Enterprises will often generate both positive and negative impacts simultaneously. When setting goals, we don’t assume that the positive and negative impacts of an enterprise cancel each other out, either:
- within the same group of people;
EXAMPLE: If a person’s financial security is better, we ignore it if their health is worse as a result of working longer hours.
- or between different groups of people;
EXAMPLE: We improve this group of people’s educational outcomes and can therefore ignore that we make the educational outcomes of another group worse.
- or between people and planet.
EXAMPLE: We improve a group of people’s access to energy and therefore ignore that we are polluting the environment.
But we do make judgements about whether achieving a certain positive impact is worth, at a point in time, generating material negative effects.
EXAMPLE: We make a judgement about whether improving people’s health through air ambulances is worth the substantial carbon emissions generated.
We acknowledge that those material negative effects still need to be managed by setting goals to reduce or mitigate them over time. It is important to note that carbon emissions are one case where positive and negative effects do cancel each other out.

Resources

When and how do we adapt our goals?

It is very often the case that enterprises will have material effects on people and planet outside of our original goals.
EXAMPLE: We may discover that the enterprise has the potential of achieving our goal of enabling many children in a country to have much better health outcomes but likely also generates other material positive effects, such as high quality employment for formerly unemployed individuals, or negative effects, such as carbon emissions.
Learning about the effects that people experience from engaging with an enterprise therefore enables us to re-set our impact goals to include prevention of negative effects and decide whether to include goals to generate other positive effects too.
EXAMPLE: We might include a goal of reducing carbon emissions, and consider including a goal to employ formerly unemployed individuals.

Do all enterprises set impact goals about their ‘indirect’ impact?

EXAMPLE: A positive effect that a large business could have through their supply chain may be more significant than the positive effect that a small business could have. The large business’ contribution is likely to make the effects of that supply-chain much better than if it chose not to generate those positive effects. In this case, the large business would find it compelling to set goals to manage material positive effects through its supply-chain, whereas the small business would not.
We set goals based on an enterprise’s material effects on people and planet, regardless of whether they are generated by its products/services, its distribution chain, its operations or its supply chain. We do not consider effects generated by an enterprise’s distribution network, its operations or its supply chain to be necessarily less or more significant than the effects of its products or services. However, our judgement of whether an effect is relevant for impact management includes our judgement of ‘HOW MUCH’ of the effect occurs and whether our ‘CONTRIBUTION’ makes what is currently occurring likely better or worse. The impact generated by a small business through their supply chain will therefore typically be less relevant for impact management than the impact generated by a very large business through their supply chain.

Resources

What information do we use to set our goals?

We use existing information to try to understand which people (or the planet) want and need which effects. This helps us assess the impact we expect to occur.

We can collect existing information:

  • Directly from the people likely to be affected
  • By drawing on the experience of those working at the frontline.
  • By drawing on publicly available information, which may include academic research or practitioner research, or some combination of the two.

When we are transparent about the type of information we’re using, we help others understand the degree of confidence we have about the impact we expect to occur.

Since people’s actual experience of impact is often different to the goals we hoped to achieve, we collect our own information about the material effects we are having on an ongoing basis. We can collect data to understand our impact in three ways: direct feedback, objective measurement of change in effect, and external evaluation.

Resources

How do we set indicators to understand performance against our goals?

We try to set indicators that describe the effect we are having for all dimensions of our impact goals. Enterprises are typically best placed to identify which indicators - quantitative or qualitative variables that assess performance - are most useful for managing progress against their impact goals. Intermediaries and asset owners may set indicators at a portfolio level, which they can use to identify a mix of strategies that will meet their impact goals, within any constraints of their financial goals.

Material-Effect-2-v2

Resources

Do we need to set targets?

Setting targets - or being explicit about the level of performance expected against an indicator – is a useful way of comparing performance to an established benchmark of what has been achieved historically or elsewhere (where this information is available).

The process of setting targets - or forecasting expected performance against indicators - is helpful for all partners to agree what ‘good’ performance looks like for a particular set of goals. Targets, like goals, can be re-set, as new information improves our understanding of impact and what is achievable.

Our ability to set targets depends on what information we have about the historical performance of our own and/or comparable strategies.

  • As those closest to the people or planet affected, enterprises are best-placed to set targets for their impact indicators, as they do for financial indicators.
  • Investors who are investing in ‘unknown’ frontier markets will typically rely on the targets set by enterprises, since it is those at the frontline who are learning what is achievable, which can inform target-setting in the future.
  • Specialist investors, with a focus on a specific set of goals may be able to set targets against indicators at the portfolio level, since they have a good understanding of the one (or few) types of approach that they will invest in.
  • Investors who target different types of goals within an overall portfolio will typically not wish to set targets, as they want to remain deliberately opportunistic about the precise mix of goals that the portfolio achieves as they find promising opportunities. For example, they may want the ability to choose some investments that have a very deep impact on fewer people and other investments that have less depth of impact but reach many people.

Resources

What does this mean for investors?

The impact goals of an investment are a function of the impact goals of the underlying business (or portfolio of businesses) that the investment supports, plus the CONTRIBUTION that the investor makes to enable that business (or portfolio of businesses) to achieve those impact goals. We separate these two considerations to avoid inappropriate blurring of the impact of underlying businesses and the contribution that an investor makes to those business' ability to deliver that impact. This sort of blurring often leads to unhelpful comparisons of, for example, an investor buying shares of a large multinational that is creating thousands of new high quality jobs for low-income individuals with the impact of an investor providing hands-on equity investment to a small business creating hundreds of high quality jobs for low-income individuals.

Impact Goals + Contribution v2@1.5x Created with Sketch. IMPACT GOALS OF BUSINESSES INVESTOR’S CONTRIBUTION Signal that impact matters Signal that impact matters Signal that impact matters Signal that impact matters Signal that impact matters Signal that impact matters + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital Try to prevent material negative effects for people and the planet Positive effects for people and the planet + Try to prevent material negative effects Specific, material, positive effects for people and the planet + Try to prevent material negative effects

The resulting table below allows us to show the existing landscape of choices available to investors, based on the goals of the businesses being invested in and the strategy that the investor uses to contribute to impact. An investor can plot their existing portfolio and then transition that portfolio over time to be impactful in the way that they wish, given their intentions, constraints and their financial and impact goals. For examples of different investment products that investors can choose to deliver their impact goals, see deliver and improve.

Enterprise and Investor's (1) v2@1.5x Created with Sketch. IMPACT GOALS OF BUSINESS Cause material negative effects for people and the planet Unaware if material negative effects occur for people and the planet Try to prevent material negative effects for people and the planet Positive effects for people and the planet + Try to prevent material negative effects Specific, material, positive effects for people and the planet + Try to prevent material negative effects INVESTOR’S CONTRIBUTION Signal that impact matters Signal that impact matters Signal that impact matters Signal that impact matters Signal that impact matters Signal that impact matters + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital + Engage actively + Grow new or undersupplied capital markets + Provide flexible capital

For more on how investors think about the impact of their investments, brought to life through a series of model portfolios, see here.

To understand how this table provides more granularity to the Spectrum of Capital, see here.

How do our impact goals relate to our financial goals?

We do not have sufficient data to generalise that certain impacts always deliver certain types of financial performance, nor vice versa. This means that we also cannot generalise that having certain types of impact goals means that we should have certain types of financial goals. However, for individual enterprises, or investments in enterprises, we do consider either what financial performance we can forecast for the impact goals we to achieve, or what impact performance we can forecast for the financial goals we want to achieve.

For example, one enterprise may assume that the impact goals they want to achieve are capable of delivering competitive risk-adjusted financial returns. Another enterprise may assume that their impact goals are capable of delivering competitive risk-adjusted financial returns but over a longer time horizon than the market would typically tolerate. Another enterprise may assume that their impact goals require them to accept a disproportionate financial risk/return, for example because they are testing whether market creation is possible for a very marginalised population.

Being transparent about the assumptions we are making about the interplay of a specific enterprise or investment’s financial goals and impact goals makes it easier for everyone we are working with to determine whether we share the same expectations, including the assumptions we are willing to make and the uncertainties we are able to tolerate. When we are explicit about our assumptions, we should also be explicit about:

  • what information those assumptions are based on
  • how we determine what information is more or less material (to both financial and impact performance)
  • the timeframe relevant for our understanding of materiality

For more on the interplay of impact goals and financial goals, see here.

Give me some examples

See how the risk dimension has been helpful to Acumen and NPC to understand the risks they are willing to take, which risk factors matter most to them and how they manage to risk. If you are an investor or funder you may be interested to see how risk can be managed at a portfolio level

Read more from our partners on our blog

Blog