How do we manage impact risk?
We manage impact risk by making decisions, based on our risk assessment, to either reduce the likelihood of a risk occurring, or reduce the consequences for people and planet. These decisions involve allocating or reallocating resources, changing the nature of activities, or collecting new information. For example:
- Should resources be allocated to an investment already made, or re-allocated to a different investment?
- Should an activity be changed?
- Should an activity be stopped?
- What information do I need in order to understand what effects are (or are not) occurring?
In practice, we collect data to understand the material effects experienced by people and planet. Managing those effects can reduce the likelihood of many risks.
In this section, we bring the dimensions to life through examples of how of a number of enterprises work to deliver employment outcomes for young people with different needs in different geographies. The examples are drawn from specific organisations but illustrate useful approaches for any enterprise or investor - big, small, for-profit or non-profit - managing impact across the five dimensions.
Meet Impetus PEF, an organisation who seeks to transform the lives of economically disadvantaged young people aged 11-24 years.
In order to mitigate the risk of not achieving its expected impact, Impetus PEF conducts a thorough due diligence process. This comprehensive process seeks to ensure that it is investing in the right businesses to meet the needs and aspirations of its target group of people. Reviewing this due diligence data helps Impetus PEF to understand the various risks they would take on if it decided to invest and work with an business. This process does not mean that Impetus PEF is a risk-averse funder, but rather it attempts to recognise the level of risk from the beginning in order to effectively mitigate it as it builds a business’s impact management capacity.
When a risk’s consequence is significantly reduced, it may be possible to take on more risk. We can do this by collecting new information, or by changing our activities.
For example, Impetus PEF partnered with the Social Research Unit to study what randomised control trials exist for youth employment programmes and what they show. To do this, they reviewed hundreds of programmes to establish which had been sufficiently well-evaluated to produce learnings, and what those learnings might be. Findings included learning that work experience likely produces no effect on employment outcomes on its own, but is more likely to generate material effects as a secondary component on a training programme. Impetus PEF shares what it learns with its investees, as contributes to public evidence bases, in order to improve performance and reduce risk across the sector in a way that many businesses may not otherwise have the resource for.
We continue to revise our risk assessments at different stages of the impact management cycle as we collect and analyse data to learn what our effect is, and then increase or change our effect.
For example, Impetus PEF conducts an internal review across all investee partners every 6 months. The review returns to the criteria used in due diligence and assesses, for each business, where progress is being made, and capacity built, as well as where action or support is needed. This ongoing measurement against the co-developed impact goals then enables Impetus PEF to understand whether goals have been achieved and if the risk(s) previously identified have been adequately mitigated.
Even if our decisions do not change as a result of this re-assessment, it’s valuable to revisit the discussion and debate.