The field of impact investing turns 12 this year. As any parent knows, 12-year-olds can be precocious, and while they’re still young, they’re also maturing and ready to take on more responsibility and accountability. The same is true of the impact investing field. In particular, now is the time for more maturity and accountability in measuring social impact, and to achieve it, we must bridge the gap between evaluation theory and practice.

The COVID-19 pandemic and the resulting economic recession, and the need to support the growing racial justice movement make it all the more urgent that impact investing be an effective vehicle for social change. To that end, the field must keep high-quality evidence and measurement front of mind as the world endures and eventually recovers. In this article, we explore some of the factors contributing to the mismatch between traditional evaluation methodologies and impact investing, as well as the limitations of current practices. We also present two strategies for strategically using evidence throughout the investment lifecycle.

What counts as high-quality evidence? How does an investor predict impact before making an investment, and what should they use to measure impact post facto? These questions highlight the gaps between theory and practice when it comes to assessing evidence for impact measurement.

The most common measurement practices in impact investing rely on accounting principles, common sense, and easily quantifiable outputs. Many investors use information straight from enterprise balance sheets to roll up basic descriptive data about outputs. For example, two of the most common outputs reported include the estimated number of jobs created and/or the potential increase in revenue; both are easy to understand and relatively easy to collect. Investors also rely on gut-based assessments to drive decision making. If an investor is thinking about investing in a recycling company, they may assume that the company has an environmental impact without attempting to quantify it—because, of course, recycling is good.

Read the full article about impact investing by Kendall Rathunde, Daniel Hadley & Gwendolyn Reynolds at Stanford Social Innovation Review.