Giving Compass' Take:

• Stanford Social Innovation Review discusses the mechanics of impact investing, specifically when it comes to more effective management: How can we improve the sector?

• Basically, we need to think about impact through each step of the process, which requires commitment, consistency and transparency. Not all of these principles will come as second nature.

• Here's why the next step in impact investing is breaking the shackles of extractive thinking.


One of the defining trends in impact investing in the past year has been the mushrooming interest in impact management, the essential practice of integrating impact at each stage of the investment process.

This is thanks to field-building efforts led by the likes of the Impact Management Project and Global Impact Investing Network (GIIN), along with the attention marquee entrants have attracted from a much larger investor base. When Bain, TPG, Partners Group, and others arrive on the scene, investors want to know: Is it for real?

The scrutiny is welcome and appropriate. Many of the fundamental challenges in impact investing — confusion, inefficiency, and misalignment — can be traced back to the difficulty of differentiating and articulating the impacts in impact investing, which is part of what impact management sets out to do.

While the field still lacks a commonly accepted way to easily distinguish between approaches to impact, that has not stopped investors from making tremendous progress in putting impact management into practice.

Integration: Impact management involves intentionally weighing both impact and financial considerations at each step of the investment process, including during sourcing, due diligence, execution, support for investees, monitoring, reporting, and exit. Many managers are seeking new partners to help integrate these processes seamlessly and efficiently using tools like custom screening criteria, due diligence questionnaires, performance dashboards, and purpose-built impact governance structures.

Materiality: The principle of materiality suggests that an impact investing manager’s investment theory of change, or impact thesis, should be grounded in specific activities and outputs that academic and other evidence suggests will have material positive social and environmental outcomes.

Pragmatism: Investors should design their impact management practices so that they are pragmatic and appropriate for the needs of their stakeholders. To do so, they should balance rigor in impact evaluation with efficiency and cost-effectiveness.

While impact management can be complex and idiosyncratic, recent advances have the potential to result in unifying best practices, which will be an important step toward greater accountability in impact investing, and a better understanding of actual effects on people and the planet.

Read the full article about best practices in impact management by Ben Thornley and Bryan Locascio Stanford Social Innovation Review.