We spend a lot of energy on monitoring financial returns. It’s time we do the same for impact.

Despite the economic uncertainty that’s resulted from COVID-19, the past two years have seen an explosion of impact investment in social profit organizations and sectors. In fact, interest in these investments soared to new peaks during the pandemic, with assets in sustainable funds coming in at a record $357 billion at the end of 2021 — more than four times the totals recorded just three years prior. 

However, as more investors enter the space, the definition of “impact” has become increasingly opaque. While investment aimed at generating a financial return is guided by a predefined set of assumptions, metrics, and expected outcomes, the impact space lacks parallel types of shared measures to collectively gauge the “impact returns” it hopes to generate.

A big part of the problem is that the term “impact” doesn’t have much meaning until we assign it. What impact and on whom? How will you know once it’s made and how are you measuring it? 

And to make things even more complicated, we believe that impact must be grounded in equity – yet another term that has been jargonized and diluted by overuse without a clear definition. 

We are at a critical inflection point. There’s more capital than ever before in the impact space today — which is a tremendous victory — but if investors are not as explicit and thoughtful about how we define our social and community impact returns as we are with our financial ones, we risk doing far more harm than good.

Take the booming ed-tech sector for instance — which grew by nearly 21% in 2021. The space is overflowing with exciting innovation that harnesses today’s technology to enhance learning for leaders of tomorrow. But, which of these tools are most effective for students, families, and communities? Unfortunately, there are few guardrails in place to separate quality social innovation from those that come up short — putting the individuals these systems serve at risk of being collateral damage. Without formal processes to establish which of these tools lead to the outcomes they promise, they risk under-delivering on their impact at best and harming students and their futures at worst.

Impact investing is a great tool to diversify your portfolio and can do a lot of good in the process. However, we must make sure that the money being invested is actually working to better society. Capital touting its double and triple bottom line returns should take the same care to define, monitor, and report on its social and community impact as it would for its financial returns. And unless we as investors hold ourselves accountable to this, we risk undermining the progress we’ve worked so hard to gain. Defining our terms, involving stakeholder communities, and tracking progress helps orient our social impact expectations just as strong as our financial ones.

So what does good impact investment look like in practice? From my perspective at Siegel Family Endowment, prioritizing investment in organizations that place high value on their quantitative and qualitative outcomes is critical to creating impact. Returning to the previous example in the ed-tech space, two of our grantees doing incredible work, Khan Academy and Scratch, take a student-centric approach to their products. As nonprofits, they do not face the same pressure to produce financial returns, but they closely measure their financial health. Foremost, they care about the experiences and knowledge that their participants walk away with. They also devote significantly more money and time to research and design as compared to marketing to ensure their students come first.

It’s on us as investors and philanthropists to champion more comprehensive performance metrics that are inclusive of financial, social, and equity returns – always while engaging the stakeholders we are seeking to reach as partners in crafting our definition of impact. In doing so, we will create stronger guardrails that provide structure and strengthen the outcomes of our overall work. We have the opportunity to set a new and powerful standard for what true impact looks like across the industry and take away some of the risk associated with investing in the innovation ecosystem – it’s up to us to act.