You cant manage what you dont measure. Its
such a fundamental rule of business that it hardly bears
repeating in the day-to-day work of running a small firm, a
major corporation or an investment fund.
But there are times when a business moves into lesser-known
territory, where all the usual measurement tools come up short.
I see this happening more and more as businesses embrace things
like sustainability and corporate social responsibility
even happiness and quality of life. Terms like triple bottom
line or third metric attempt to quantify some of the important
benefits of their work but do not fit neatly onto a balance
Another one of those terms is
impact investing. Now, impact investing is a term very dear
to me and very core to the work of the Overseas Private
Investment Corp. (OPIC), the U.S. governments
developmental finance institution. But its also a term
that, without the backing of some solid measurement tools, runs
the risk of being misunderstood as one of those nonserious,
touchy-feely activities that businesses engage in solely to
improve public perception.
Impact investing seeks to address common challenges such as
access to education, financial inclusion, housing, health care
climate change while at the same time generating sufficient
returns to constitute viable investments. An even shorter
definition is that impact investments seek to do well by doing
But how do you quantify that?
At OPIC, we found there was no simple way to determine which
of our investments were, in fact, impact investments. So when
we took a look at how we could best assess which of our
projects were garnering positive returns for both the target
communities and the investor, we used the following
Does the project aim to have a positive
developmental impact? Because OPICs mission is
to support development, we consider every projects
potential developmental impact at the outset and ensure that
all the projects we support meet this standard.
Is the investment in a high-impact sector?
From there, we looked at how we might define a smaller subset
of our portfolio, so we counted only those projects that were
in what we term high-impact sectors, which often face
challenges raising capital, such as low-income housing,
microfinance and renewable energy. Last year $2.7 billion out
of OPICs $3.9 billion in financial commitments was in
those economic segments.
Was the investment made with impact intent?
Finally, we sought to isolate a much smaller group of
investments that clearly had impact intent, that is, the
implicit aim of the project was to address a social or
environmental challenge while also generating financial
returns. Last year $222 million of OPICs commitments fell
into this category.
This final definition separates all those projects that
might happen to have a positive social impact from those that
were designed from the outset to do good as a core part of
their value proposition and business model. The latter is a
very tough standard to meet, and one that I think all impact
investors should be able to agree upon.
Some of OPICs most successful investments to date fall
under this narrow rubric. We supported multiple funds managed
by Global Partnerships, a Seattle nonprofit
fund management firm that invests in low-income communities in
Latin America. The first of these funds has already been repaid
My hope is that if we at OPIC can track the performance over
time of that small group of projects that are indisputably
impact investments, we can help show that impact investing
works, not only by generating positive social benefits but also
by generating financial returns.
Elizabeth Littlefield is the president and CEO of the
Overseas Private Investment Corp., a U.S. government
developmental finance body that manages an $18 billion
portfolio, in Washington.