The communicative goal of value entrepreneurs

To understand the precise nature of the measuring devices used in this field requires attention to these objects’ history or biography – who created these tools and to what purpose/s. Here, value entrepreneurs included the BCtA, a membership organization composed of a number of developed nations’ development agencies, as well as several United Nations offices. In 2008, these actors decided to form the BCtA in order to encourage corporations to work towards the Millennium Development Goals. The BctA challenged “companies to develop Inclusive Business models that offer the potential for both commercial success and development impact” (BCtA 2013). In 2010, the BCtA commissioned the creation of a measuring device, the Results Reporting Requirement, which it required member companies to implement and to share their results with the association.

Similarly, the World Business Council for Sustainable Development is a membership-based business association that was created in 1995 to serve the needs of corporations with a self-identified commitment to socially and environmentally responsible behavior. In 2005, the WBCSD developed the term of “Inclusive Business” in order to convey and promote the idea of corporations that could profit from and address poverty through their business models. Three years later, the WBCSD (2008a, 2008b) formulated a measuring device, the Measuring Impact Framework, for use by its member organizations that identified as Inclusive Businesses.

Oxfam, the international relief and development organization, created the third measuring device, the “Poverty Footprint.” First developed in 2004 in a case study of Unilever’s work in Indonesia, and then formalized in 2009, the “Poverty Footprint” is a tool to be employed by Oxfam at a firm’s request in order to estimate the effect of the company’s business operations on economic and social development for the local community (Clay Reference Clay2005; Oxfam 2009). The Poverty Footprint was part of Oxfam’s broader recognition of the capacity of compassionate companies to address poverty, as outlined in one Poverty Footprint report in 2011. “We have often viewed and exposed multinational companies as a threat to poor communities and, historically, our relationships with the private sector have focused more on campaigning than collaboration,” wrote the president of Oxfam America (Coca Cola/SAB Miller 2011:10), but now “we recognize they can also drive innovation, job creation and economic growth in the developing world.”

These proponents developed measuring devices for Inclusive Businesses with a particular communicative purpose in mind – that of legitimacy. As noted in Chapter 2, a tool of valuation is constructed to generate legitimacy when it is intended to convey the “generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman Reference Suchman1995:574). In the case of legitimacy, a measuring device serves as a “political solution to a political problem” (Porter Reference Porter1995:x). The pursuit of legitimacy is contextually specific and its meaning for focal actors depends on the expectations of powerful others in a particular setting at a precise historical moment. For instance, Chapter 2 showed that public and nonprofit resource providers of nonprofits in the 1990s developed outcome measurement in order to assert their legitimacy by meeting their own funders’ expectation that they should oversee recipients via the use of performance measurement techniques.

In this nascent field, Inclusive Businesses faced a particular challenge to their legitimacy, one that reflected the experience of developing nations in the global economy over the prior decades. By definition, Inclusive Businesses are large multinational corporations that locate at least some of their value chain in a developing country. To obtain access to a local economy, these companies must obtain “license to operate” from powerful local stakeholders. These constituencies include government agencies (who engage in public regulation over the economy) and civil society actors, such as NGOs and community representatives (who seek to exercise private regulation over market actors), who together provide the formal and social license for MNCs to operate in that region’s economy. It has been to these local stakeholders that all MNCs – and so all Inclusive Businesses – had to demonstrate their legitimacy in order to obtain public and private permission to operate in a region.

Yet, obtaining license to operate was difficult; corporations faced an environment that was highly critical of the consequences of foreign direct investment for developing nations. First, over the last two decades or so, multinational corporations have faced growing public regulation regarding performance requirements, which firms must meet in order to gain access to the desired industrial sector of the local economy. These performance requirements are specific laws or regulations on foreign direct investment which mandate that a certain percentage of component parts or other inputs used in the production process be sourced from domestic manufacturers and that a certain percentage of citizens from the host country be hired and trained by the corporation. Despite being technically forbidden by the World Trade Organization, these formal regulations are on the rise, particularly in the infrastructure industries of oil, gas, and mining, as a way to maximize national value creation for developing countries by generating local benefits via the composition of the supply chain and employment (Hufbauer and Scott Reference Hufbauer and Schott2013). One example is the case of Nigeria, where the national government in 2010 adopted a law privileging local companies and favoring foreign companies that considered employment and local procurement in any contracts granted in their oil and gas industry (Government of Nigeria 2010).

In addition, actors in civil society, such as NGOs and community groups, have protested the consequences of globalization for the developing world, in part by instituting private regulation of corporations. As discussed in Chapter 5, a range of transnational networks has pushed back against the neoliberal policy of structural adjustment and the presence of multinational corporations in the global South. For many, globalization has possessed largely negative ramification for developing nations, including forced urbanization and dispossession, increased economic inequality, and environmental degradation. While some protests were oriented against multilateral organizations like the International Monetary Fund, the World Bank, and the World Trade Organization (as in the 1999 Seattle anti-WTO protests), others have been directed at a specific MNC (such as the indigenous community’s protests in the 1990s against Shell’s operations in the Niger Delta in Nigeria).

The existence of such a skeptical environment and the presence of both public and private regulation over the operations of multinational corporations in the global South helps both to explain the turn to Inclusive Business (as a discursive move to highlight the positive effects of MNCs for their regions of operation) and the creation of measuring devices (given their ability to generate data to demonstrate compassionate companies’ social and economic benefits for their region of operation). As required by public regulation, MNCs required evidence that they met the requirements of local employment and sourcing in order to obtain formal license to operate. And these firms also would benefit from the voluntary provision of evidence of their positive impact in order to obtain social license to operate from key actors in civil society, as evident in the earlier case of CSR.

In both cases, we can understand the rise of measuring devices here as yet another instance of the broader realization by multinational corporations of the necessity of meeting external expectations of legitimacy, beyond purely market-based considerations. As scholars have demonstrated, MNCs came to see that any “hazards or harms” they engender through their business operations, even if not illegal, would be subject to “public censure, government action, and legal liability.” In result, companies voluntarily have sought to go beyond local regulatory requirements and to obtain a “social license to operate” from key stakeholders (Gunningham, Kagan, and Thornton Reference Gunningham, Kagan and Thornton2004).¹⁶

Evidence of this desire to assert compliance with both formal and informal expectations of legitimacy on the part of value entrepreneurs in the field of Inclusive Business is found throughout their publications and in interviews with members of the field. In the case of the WBCSD’s Measuring Impact Framework, the organization proclaimed that the tool “can help companies show communities, government authorities, and other stakeholders, like donors and civil society groups, that their activities create net benefits for the economies and societies in which they operate – and mitigate the risk of negative publicity, protest, and declining government support for current and future operations” (World Business Council for Sustainable Development 2013b:8). Somewhat predictably, one of WBCSD’s first case studies with the framework was with Saipem, an Italian multinational that engages in oil and gas extraction in Indonesia, precisely the type of industry subject to state oversight of foreign direct investment and to scrutiny from civil society members (World Business Council for Sustainable Development 2013a). One of the earliest efforts to measure the social value of inclusive businesses in order to obtain social license to operate was conducted by Oxfam GB for Unilever’s operations in Indonesia (Clay Reference Clay2005). In the preface to the report, the group chief executive for Unilever wrote, “at times it has been hard for our managers to find their values and behaviours subjected to such sceptical scrutiny, and to see their achievements, when operating in a complex business context, so lightly passed over” (Clay Reference Clay2005:10). The BCtA’s Results Reporting Requirement was constructed with the goal of the BCtA using the aggregated data to demonstrate the benefits of Inclusive Business to key audiences and to “inspire additional action by the private sector in this area” (BCtA 2010:2). And, in the words of a senior staff member of one major advocate of Inclusive Businesses, “social impact measurement is needed because of the risk management side of things – meaning the need for multinationals to get license to operate in order just to get access to some places. It can show local governments how companies manage their business and how they avoid dodgy practices in the community.”

Understanding the communicative purpose of these measuring devices for Inclusive Businesses helps to account for which aspects of the field’s social project were included, and which were excluded, from these measuring devices. These tools specifically were created in order to disseminate the necessary data on Inclusive Businesses’ social performance in order to demonstrate legitimacy by conformity with expectations of formal and informal providers of MNC’s license to operate, thus explaining their focus on the social value of Inclusive Businesses and their omission of a concern for the financial value of these companies.

The role of the valuation repertoire

Yet, explaining the disjuncture between the social project of Inclusive Businesses and the types of value gauged in the prevailing measuring devices in this field also requires consideration of the capacity of value entrepreneurs to construct an appropriate instrument. Charged with the precise communicative purpose of demonstrating the legitimacy of MNCs to stakeholders in the global South, valuation entrepreneurs (either the staff of organizational advocates of Inclusive Business or one-time consultants hired for this purpose) drew from their professional expertise to construct a suitable measuring device for the task at hand. As noted in Chapter 1, the formation of a new measuring device constitutes a concerted effort on the part of an actor/s to devise a tool to gauge entities by reference to a specific criterion. As we have seen in other chapters, value entrepreneurs do so by relying on the range of models available to them in their valuation repertoire. However, the implications of the concept of a valuation repertoire for understanding value entrepreneurs’ action are not straightforward. On the one hand, as we have seen in past chapters, the possession of a valuation repertoire composed of multiple tools, techniques, and technologies means that those entrepreneurs have a number of options available to them when they seek to construct a measuring device. These actors then can draw from an existing valuation tool/s that can be suitably re-fashioned in order to negotiate a specific challenge or pursue a particular goal. In the case of social enterprises, as detailed in Chapter 3, proponents of this new type of social purpose organization relied on their expertise in both the nonprofit sector and the finance industry to construct the new measuring device of Social Return on Investment (SROI), one which successfully monetized the societal value of social enterprises to demonstrate their worth to targeted audiences. On the other hand, the limited and finite nature of a repertoire means that, on occasion, actors will lack access to a practice or method in their toolkit that would allow them to pursue their goals or interests. In an early seminal articulation of the concept of the repertoire (using instead the metaphor of the toolkit), Swidler (Reference Swidler1986), for example, showed that actors can be disadvantaged by a disjuncture between their intentions and the absence of items in their toolkit necessary to achieve that line of action. In these cases, individuals or groups must make do with the tools they have present in their repertoire or they can search for new techniques more suitable for their intended task, contingent upon the possession of adequate resources to do so (Schneiberg and Clemens Reference Schneiberg and Clemens2006).

Attention to the valuation repertoire at the disposal of value entrepreneurs here can help to account for the construction of measuring devices that focused solely on an inclusive business’s social impact and omitted a gauge of an inclusive business model’s financial value. These actors drew from their professional backgrounds in a variety of fields. In the case of the World Business Council for Sustainable Development, the professional association employed the sustainability consulting firm, Environment Resource Management, to develop a measuring tool and drew from the valuation work of the International Finance Corporation (an arm of the World Bank devoted to promoting private investment in emerging markets to facilitate development) (World Business Council for Sustainable Development 2008a). Oxfam’s Poverty Footprint was initially constructed by an executive at the World Wildlife Federation with a background in indigenous rights, fair trade, and seafood sustainability (Clay Reference 237Clay2001; Clay Reference Clay2005).¹⁷ And BCtA relied on the efforts of several staff with professional experience in sustainable development, finance, CSR, and international development (BCtA 2010).

Given their professional background, these value entrepreneurs employed and re-fashioned existing measurement tools with which they were already familiar in the arenas of sustainable development and international development for use in the new field of Inclusive Business.¹⁸ The emergence of sustainable development in the 1980s and 1990s, as outlined in Chapter 5, placed expectations on businesses to produce a measure of their usage of environmental resources. One tool created for corporations was that of the ecological “footprint:” a company can quantitatively estimate its carbon, ecological, or water “footprints” in order to capture the amount of resources it uses or the level of demand it makes on the environment as compared to what is deemed to be sustainable, with the intentional omission of the financial impact of such a ratio (Wackernagel and Rees Reference Wackernagel and Rees1996; Wright, Kemp and Williams Reference Wright, Kemp and Williams2011). Given the popularity of the tool of the footprint in sustainable development, one value entrepreneur in the field of Inclusive Business drew from that measuring device to generate a similar method to gauge the consequences of a company’s business model for a local community. Specifically, when Oxfam worked to develop a social valuation tool in collaboration with Unilever in 2005, the author of this new methodology, with an educational background and professional expertise in indigenous rights, fair trade, and seafood sustainability, intentionally transposed the metaphor of the “footprint” to capture the firm’s success in including the poor into the market as a source of economic and developmental value (Clay Reference Clay2005). As one officer at Oxfam United States later recounted about the genealogy of the Poverty Footprint: “The environmental community has done a tremendous job in being able to properly demonstrate the value in measuring environmental impact. The challenge is trying to do the same around social impact” (Sand Reference Sand2010).

While some in the field extended a measuring device originally designed to demonstrate a firm’s environment to gauge a firm’s development value, other value entrepreneurs drew from their expertise in international development to develop tools for the field of Inclusive Business. Reflecting their professional knowledge, these actors took valuation instruments created originally to assess the work of bilateral, multilateral, and NGO efforts in the developing world, but modified them for use by Inclusive Businesses (BCtA 2010, 2011; World Business Council for Sustainable Development 2008a, 2008b). Beginning in the post-War II period, when the project of international development took off, the field witnessed the growth of various valuation tools and technologies, as developed and employed by an industry of government actors, consultants, and academics (Krause Reference Krause2014). As a whole, as with the related project of evaluation in the domestic public and nonprofit sectors (as outlined in Chapter 2), funders in international development seek to assess the success of an intervention (a program, policy, organization, or collaboration) in achieving its intended social change. Several variants of evaluation were developed during this period to gauge the success of an international development project. The first, “Impact Evaluation” relies on either use of the LogFrame model (which requires the collection of data on the program’s goals, results, and activities to demonstrate its success) or the use of randomized control trials (RCTs) comparing a treatment and control group in order to establish causal attribution after the completion of the project (Banerjee Reference Banerjee2007; Krause Reference Krause2014). Development projects may also be assessed through the use of Monitoring & Evaluation (M&E), which is conducted in order to ascertain the effectiveness of a program against intended targets by the gathering of key indicators on an ongoing basis, which are typically intended for the purpose of external reporting and organizational learning (World Bank 2004a; Wach Reference Wach2012). In both cases, the effectiveness of a development project typically is not monetized in these approaches but rather counted in terms of the amount of the intended change achieved in the targeted community, dependent on the specific goal of the development intervention.

Drawing on their experience with these conventions and devices, some value entrepreneurs in the field of Inclusive Business extended them in new ways to capture the social and economic impact produced by this new type of compassionate company (BCtA 2011). They kept an emphasis on conceptualizing social value via reference to the collection of indicators of development impact, thus delimiting social value to non-monetized changes in clients and populations. Tellingly, when I asked a consultant hired to develop a measuring device for one advocate of Inclusive Business, she replied: “a lot of the starting point was the development sector approach, you know, M and E, where you try to monitor and evaluate and you think of the logic chain behind a development intervention or program. What was taken out of it when we developed this for the client was the complexity of the terminology to try to simplify it for business and to be more manageable. And then the goals too, the goals of M and E are always project specific, so in our case we filled in the blanks with our client’s preferences – their attention to what a business is going to be assessed for, specific to the task of ending poverty through their core business activities.”

In 2008, similarly, the World Business Council for Sustainable Development (2008a, 2008b) – an early proponent of the concept of inclusive business – developed the Measuring Impact Framework, intended to measure the effect of a firm’s business activity on economic development in its region of operation. These value entrepreneurs intentionally transposed the valuation tools of International Development into its framework. In its publication disseminating the framework, for instance, the authors noted: “There are some similarities between the terminology used in this Framework and the logical framework used by many development agencies/multilaterals such as OECD and IFC” (World Business Council for Sustainable Development 2008b:73). The Measuring Results Framework requires an Inclusive Business first to specify the societal “impact” (both direct and indirect) of its value chain via attention to its assets (including infrastructure, products, and services), people (jobs, skills, and training), financial flows (procurement and taxes), and governance and sustainability (corporate governance and environmental management). Secondly, with feedback from local stakeholders, the firm then would identify the potential “value” of these impacts for local economic development (including not only the creation of jobs, but other potential issues of human rights, education and health (as taken from the UN Global Compact) in order to posit the hypothetic effect of firms’ activities on those development issues. However, a company is not required to gather data to prove the posited causal relationship, beyond collecting feedback from stakeholders about its perceived validity (World Business Council for Sustainable Development 2008b).

By drawing from their professional expertise, value entrepreneurs were able to construct measuring devices to demonstrate the development benefits of Inclusive Businesses, as required by these tools’ communicative purpose of acquiring legitimacy with skeptical stakeholders in the global South. They transposed and re-fashioned items from their valuation repertoire to the new case of Inclusive Business in order to successfully capture those social dimensions of value. Yet, the limited nature of their valuation repertoire also can help to explain the exclusion of the measure of the financial value of those inclusive business practices from these same measuring devices. Unlike value entrepreneurs in the case of Responsible Investing, these actors did not possess a background or knowledge of finance. In several interviews, respondents involved in the creation or dissemination of these tools suggested that they were aware of the benefits of conveying the financial value of inclusive businesses’ business models to external audiences but that they lacked the capacity to do so. Here, the conceptualization of culture as a repertoire (or toolkit) emphasizes that it can possess a constraining effect on actors (Swidler Reference Swidler1986). In one interview, I asked a respondent who had worked on the development of one of these measuring instruments to recount how the staff had arrived at their final product. In part, Tamara outlined how they had settled on the list of indicators to demonstrate a MNC’s social impact in its region of operation. When she came to the topic of a corporation’s provision of employment opportunities in a local community, she noted: “We ended up with a count of job creation – if you look at our methodology recommendations, a company is meant to tally up how many jobs they provided to locals. But we really wanted to be able to also get that company to estimate the income produced by those new jobs over a prolonged period of time – which would have been a large number and so pretty impressive. That would have been pretty easy for a firm to estimate and more indicative as well of the value of their impact on the local economy. But, the problem was that then there would be non-comparable units across the different indicators of a firm’s social impact because we didn’t know how to calculate a dollar value for those other indicators, particularly when it came to the company’s value chain – you know, how do you calculate the monetary worth of including more locally owned companies as suppliers or how do you estimate the dollar worth of selling sewage pumps to poor people? That we didn’t know how to do and we didn’t think our member companies would know how to estimate either, much less the question of did they keep that kind of data? So we ended up just using number of jobs created to keep things simple and to keep the numbers comparable.”

Similarly, at the end of another conversation with a staff person charged with the administration and dissemination of a measuring device for Inclusive Businesses for an international business coalition, I asked Barbara about whether she or other staff had ever considered trying to calculate the value produced by inclusive business practices in relation to financial value. Such a question was relevant given that she had just told me about the superiority of Inclusive Businesses to traditional forms of international development aid based on these firms’ economic viability (as compared to philanthropic aid or government redistribution). In response, Barbara told me: “We’d love to. We talk about this as one of our goals – how does supporting local SMEs or creating local employment cut expenses or grow a market for the corporation? But right now we don’t have the means or really the know-how to do so. It would be very tough. We are thinking about it and looking around for examples of this to guide us.” Clearly, Barbara knew the business case offered for Inclusive Business and knew that it would increase the appeal of this new type of company to a variety of audiences, but neither she nor other staff members possessed the tools in their valuation repertoire to enact that justification of the field in a measuring device. Caught up in our conversation, I told her about the case of RI where value entrepreneurs are developing methodologies to estimate the economic impact of a firm’s ESG practices on its long-term generation of shareholder return, as a possible model for something similar in the case of Inclusive Business. I asked if she’d heard of any of this. She was quick to reply. “No, I haven’t, but it sounds really useful for us. Could you send me any information you have on it? We’d love to see it.”

Clearly, as this exchange illustrates, the assignment of monetary value and shareholder value to evaluate the worth of these compassionate companies is not straightforward. The construction of a formal tool by which to value firms according to this financial criterion and via the metric of money requires adequate capacity and knowledge to do so. However, value entrepreneurs in this field were constrained in this effort by their professional expertise and their accompanying possession of a limited repertoire of valuation tools and methods.

Social value in Impact Investing

At face value, Impact Investing seems similar to other fields in the broader turn to caring capitalism. A number of other markets have arisen, including Inclusive Business and Responsible Investment, where market enthusiasts have argued that investors may obtain both financial and social return. Similarly, Impact Investing disrupts the assumption that money in the market can only be oriented around economic gain. The traditional expectation, asserted one leading proponent of the field, is that “financial assets are used to fulfill two very distinct purposes: the bulk of assets are invested to maximize profit, and a very small portion is dedicated to charity. Impact investing challenges this way of thinking and enables investors to seek positive social and environmental impact with much more capital than is possible with charity alone” (UBS 2011).

Proponents of Impact Investing have offered a vision of the social project of the field where social value results from the employment of market methods to address a range of social problems. And, similar to other instances of caring capitalism, these advocates attribute the superiority of companies to achieve social value versus the capacity of NGOs and government agencies to firms’ sustainability and scale (Monitor Institute 2009; J.P. Morgan Reference Morgan2011; Bugg-Levine and Emerson Reference Bugg-Levine and Emerson2011). However, proponents of Impact Investing highlight the benefits of a new type of social purpose organizations by which market engagement can produce social good. For the first time, the focus is not on large corporations headquartered in the global North and operating in developing countries (as characterizes other types of caring capitalism), but rather on directing loans and equity investment to small, locally owned companies (often called SMEs, as discussed earlier) whose business model is premised on solving a social problem. The goal of impact investment is “local in nature,” to quote from a respondent, where investors should direct “capital directly into companies and projects,” rather than invest in multinational corporations that operate in socially or environmentally beneficial sectors (e.g., clean energy), that practice CSR, or that operate in the global South (Bugg-Levine and Emerson Reference Bugg-Levine and Emerson2011).

One instance of this definitional distinction occurred at an impact investing conference that I attended. One panel member was a partner in a small boutique investment firm that focused on emerging markets. He had been invited to present on his company’s decision to invest in a green start-up in Mexico as a case of impact investment. But, in the Q&A session, he argued that all of his firm’s investments in emerging markets should qualify as “impact investments” given that they served to grow the economy of developing nations, with corollary societal benefits. The other panel members and the audience were quick to reject his claim, with many loudly noting that the specific purpose of Impact Investing is to place investment and loans with locally owned firms whose business models constitute a solution to a social problem. As one panelist exclaimed vehemently: “Money alone is not the answer!”

In the social project of Impact Investing, investments to SMEs must be oriented towards economic development benefits as a source of social value (through investment in micro-finance vehicles and community development institutions) or towards facilitating the growth of firms that sell goods or services that solve social and/or environmental problems or that are targeted to those at the Bottom of the Pyramid. Examples here include companies involved in sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology, and financial services for the poor, among others (Monitor Institute 2009).¹⁹ One example is Selco, an Indian company that provides access to affordable solar energy to those living below the poverty line (Milligan and Schøning Reference Milligan and Schoning2011). Advocates of the field recognize that, in the process of producing these types of goods and services, local companies may also generate social value by sourcing, hiring, and distributing locally. However, the incorporation of the poor into the market is viewed as only one source of social value in the field of Impact Investing, as opposed to the premises of the field of Inclusive Business (J.P. Morgan 2010).

The origins of Impact Investing

The origins of Impact Investing can be traced back to the concerted effort of a small group of nonprofit funders and government agencies, led by the Rockefeller Foundation. They sought to formalize and scale an existing interest by philanthropists to provide investment support to small firms in developing countries as a new, optimal solution to social problems through the construction of a new organizational field. These advocates, historical shift from funding nonprofits to companies as vehicles of social welfare reflected broader changes occurring both inside and outside the field of philanthropy in the United States over the last several decades. First, the Rockefeller Foundation, as was occurring both in the nonprofit sector and in the field of international development, had embraced market-based solutions to societal problems (Rockefeller Philanthropy Advisors 2006). As discussed in Chapter 3, not only had many traditional foundations like the Rockefeller Foundation taken up this market-based approach to social problems, but they were joined by a new group of institutional donors – many of whom self-identified as “venture philanthropists” – who specifically funded market-based efforts to end poverty, including the Roberts Enterprise Development Fund (REDF), New Profit Inc., the Acumen Fund, Investors’ Circle, and the Calvert Group/Calvert Special Equities (Moody Reference Moody2008). But, these advocates of Impact Investing also believed that not only were social inequities to be solved through ensuring market access to the disadvantaged, but also that the scale of assistance available through private, marked-based means was far larger than through philanthropic funding of NGOs. In the words of the president of the Rockefeller Foundation, one of the key proponents of impact investing, “we recognized, if you put a price tag on all the social and environmental needs around the world, it is in the trillions. All of the philanthropy in the world is only $590 billion. So, the needs far exceed the resources. The one place where there is hundreds of trillions of dollars is in the private capital markets. So we, and others, began to wonder are there ways to crowd in private funding to some of these incredible needs” (Kozlowski Reference Kozlowski2012).

Secondly, the Rockefeller Foundation’s interest in Impact Investing resulted from many foundations’ embrace of Mission-Related Investing, a new rationale for how charitable foundations should direct their assets. Foundations in the US legally are required to direct five percent of their assets annually to nonprofits in pursuit of their charitable mission and the remaining ninety-five percent of their assets typically is invested to generate financial return. Historically, that latter pool of capital has been invested according to the legally defined fiduciary duty of being a “prudent investor” through traditional investment strategies that privilege a high rate of financial return, regardless of the social nature of the investments. In contrast, Mission-Related Investing occurs when foundations invest a portion of their capital assets in ways conducive to the pursuit of their charitable mission but also seeking a market-rate of return (Reis Reference Reis2003; Cooch and Kramer Reference Cooch and Kramer2007; Godeke and Bauer Reference 243Godeke and Bauer2008).²⁰ In a sense, Mission-Related Investing constitutes a form of Socially Responsible Investing in that the definition of social value that guides investing is tailored to the foundation’s mission. Pioneered by a small number of foundations in the 1990s (including the Jesse Smith Noyes Foundation) and catalyzed by media criticism of the Gates Foundation’s investment of its capital in 2007 (Piller, Sanders, and Dixon Reference Piller, Sanders and Dixon2007), Mission-Related Investing is an increasingly common strategy on the part of large foundations to direct some of their capital assets for both financial and social return. Starting in 1998, for example, the Rockefeller Foundation had experimented with MRI, where it invested its capital in for-profit endeavors through its Program Venture Experiment (World Economic Forum 2005).

Finally, proponents of Impact Investing drew from the broader embrace of double bottom line businesses and socially oriented investing outside the nonprofit sector. As with the case of Inclusive Business, the economic viability and success of microfinance in improving the lives of the poor and producing profit for investors legitimated the concept of Impact Investing (Silby Reference Silby2011). Advocates also highlighted the scale of resources invested in community development initiatives as proof of the viability of Impact Investing (Bugg-Levine and Goldstein Reference Bugg-Levine and Goldstein2009). And the growth of Socially Responsible Investing, CSR, and RI among not only market monitors – motivated by political activism – but also among mainstream investors interested in market-rate return was seen as evidence that a market of Impact Investing could be constructed whereby market monitors could join with philanthropic funders and traditional investors seeking a market-rate of return (Monitor Institute 2009; Hope Consulting 2010; J.P. Morgan Reference Morgan2013).

Challenges to solving the value problem

In its establishment of a market of Impact Investing, the resulting goal for GIIN was to create a single measuring device for the gauging of an investment’s value. For this organization, however, creating one shared valuation instrument for this new market required addressing two challenges inherent to Impact Investing’s pursuit of both financial and social return. First, GIIN had to resolve how to generate a single measuring device for the entire industry when investors’ desired balance of financial and social return varied across members, making difficult the assignment of economic value to an investment’s social impact. Secondly, GIIN had to solve the problem of the varied and subjective meaning of social value in the market’s pursuit of social return, making difficult the establishment of commensurability across investment opportunities. These two challenges to a resolution to the value problem resulted from the impact investing’s aggregation of an array of existing fields, each characterized by its own social project, including its definition of social value and its expected relationship to economic value.

Social versus financial return

The first problem for GIIN in addressing the value problem arose from staff’s recognition that impact investors differed in their desired balance of social and financial return. Through its sponsored research, the Rockefeller Foundation quickly realized that investors held contrasting goals or “investment theses” for their impact investments (Monitor Institute 2009; Bouri Reference Bouri2011; J.P. Morgan Reference Morgan2011). Four main types of investors were identified in an early report on the state of the industry: “financial first investors” who sought market-rate return with some social and/or environment benefit, “impact first investors” who privileged social and/or environmental return with a minimal financial benefit or even below-market return, others who sought both a high rate of financial and social return, and those who were comfortable with some financial return and some social and/or environmental benefit (Monitor Institute 2009).²³ Another early report on the field concluded that: “Some investors expect financial returns from their impact investments that would outperform traditional investments in the same category, while others expect to trade off financial return for social impact” (J.P. Morgan Reference Morgan2011).

This variation in investors’ preferred balance of financial and social return reflected the range of different actors and fields that advocates of Impact Investing strove to bring together into a single market, including not only responsible investors committed to ESG practices as a means to long-term financial gain, but also participants in Socially Responsible Investing, who viewed financial investing as a way to express their moral values through market-based action while not sacrificing economic return, and charitable foundations with a long history of making mission-related investment and/or community investments with an expectation of below-market return. In all, there was a realization that no single and over-arching criteria existed by which investors evaluated the worth of their investments: the balance of social versus financial return varied (Rockefeller Philanthropic Advisors 2010).

For GIIN, one consequence of “impact first investors” was that, despite its effort to model the valuation of social impact on the conventions of mainstream investing, the metric of money could not be used as the universal and single measure of social impact. Money certainly was a viable and established measure of an investment’s social return. As detailed in Chapter 3, the federal government has used cost-benefit analysis to assess the relative merit of its social policies since the 1930s and many governments, NGOs, and multilateral organizations now employ the concept of the “value of a statistical life,” which estimates how much people are willing to pay to reduce their mortality risk (Viscusi and Aldy Reference Viscusi and Aldy2003). Likewise, the methodology of SROI, as promoted by REDF and as outlined in Chapter 3, estimates the monetary value of social financing in terms of government savings (REDF 2000). More broadly, as evidenced in the growing employment of valuation techniques for items such as natural resources, the environment, and cultural heritage (Champ et al. Reference Champ, Boyle and Brown2003), increasingly “money is a good enough metric for the ‘utility’ we get from commodities” (Fourcade Reference Fourcade2011:1721).

Similarly, as with the case of Inclusive Businesses, it is technically possible to monetize many of the social benefits of double bottom line businesses, in terms of their economic development impact. As key observers point out, “many of the benefits of [Proactive Social Investments] are monetary or can be readily valued at market rates. Social investments often produce jobs, increase productivity, and generate higher wages to employees or profits to the owner. The business’s products or services may save customers time or money that can also be valued. Other economic impacts may be external to the business, such as increased taxes paid to the government, or increased purchasing from other businesses in the region. All these dimensions can be quantified in monetary terms” (Kramer and Cooch Reference Kramer and Cooch2006:40-41).

However, the use of money as a currency to gauge social value did not occur in the emerging market of impact investing. According to participants in the field, the lack of monetization of an investment’s social value was due to the expectations of one core group of resource providers. Compared to other participants, impact first investors wanted a “clear separation between financial returns and impact” (Rockefeller Philanthropy Advisors 2010:12). Money, in other words, was viewed by these investors as an indicator of economic return and so was not considered a legitimate measure of social impact for that type of investor. Drawing from a value rational version of Socially Responsible Investing, as detailed in Chapter 4, impact-first investors pursued social value first and economic return second (if at all), some even accepting below-market rates of return. Tellingly, a senior staff member at GIIN explained to me the problem with monetizing social impact in the field of Impact Investing. “There is one kind of person we are dealing with who thinks about their investments as a kind of way to change the world – so quite different from what a traditional investor wants to do, just get more money. And so trying to give a dollar value to what is going on would be anathema to them. Uh, [uncomfortable laughter] and, for me, just thinking about trying to assign a dollar value to a child’s life saved by a malaria net; that, for instance, makes me incredibly uncomfortable. How could you do that? That would just be so wrong.”

For that reason, rather than due to the perceived difficulty of monetizing social impact (as had occurred in the field of Inclusive Business), the use of money to capture social impact was not deemed feasible in the market of impact investing given the preferences of one type of investor. To monetize social value, as had happened in the fields of social enterprise or RI, would be to potentially antagonize that set of investors.

Further, GIIN staff believed that other potential investors worried more about receiving a market rate of return had access to traditional measures of financial return on their investment. To woo those investors as participants in Impact Investing, as outlined by the CEO of GIIN in 2011, GIIN was committed to employing financial data on investment opportunities to demonstrate that the industry of Impact Investing “spans a wide spectrum of risk and return profiles” (Kanani Reference Kanani2011). GIIN’s goal then became to create a measuring device of an investment’s social value that still mimicked mainstream investing in the use of a single metric and measuring device but without employing the common measure of money to estimate social return.

The varied meaning of social value

A second challenge for the construction of a measuring device in this new market was the varied meaning of social value across the field’s members. While social good is often discussed as a universal and fixed concept, this field in fact encompassed a number of different contents and meanings, dependent on the perspective of the actor in question, as also found in the nonprofit sector (as outlined in Chapter 2). In this way, the field of Impact Investing constitutes an example of what Stark (Reference Stark2011) calls “heterarchy” – the presence of multiple and competing orders of worth. Here, the lack of fixity as to the definition of social value in this nascent field followed again from the origins of impact investing in a number of different fields, each and all premised on a belief in the ability of market methods to achieve social value. Yet, despite that shared premise, proponents of Impact Investing also recognized that these fields had substantively different social projects – they were characterized by contrasting understandings of how local companies can produce social welfare by market means (Monitor Institute 2009; Harji and Jackson Reference Harji and Jackson2012). Impact Investing, to quote from one report, is “a market in which the beneficial outcomes from products and services are subjectively interpreted” (Bouri Reference Bouri2011:147).

Broadly speaking, the field of impact investing incorporates two competing conceptions of social value. Firms can address social inequities via two different strategies: the implementation of socially beneficial production processes (e.g., the inclusive organization of its value chain and/or the provision of human rights and decent working conditions to workers) or the sale of socially beneficial products (e.g., water, housing, or education) (J.P. Morgan Reference Morgan2011). The first strand of Impact Investing emphasized how firms could generate social goods by their production processes: companies improve the state of society (or avoid inflicting harm on society) via their profit-producing business models – in terms of from whom companies source, whom they hire, and how they treat actors in their value chain. The second strand of Impact Investing emphasizes the social value that follows from firms’ sale of goods that address social inequities (in that either these goods had not previously been available on the market or they were to be sold to those at the Bottom of the Pyramid). In result, proponents of Impact Investing recognized that individual actors defined socially beneficial goods according to their own values and/or worldview. As I was told by one employee of an organization that promotes investment in SMEs, “Overall, Impact Investing is about the quest for “public goods” through private means. But what that social value looks like is firm specific. The sources or criteria vary. For example, one company might provide rural electricity in Africa while another might engage in water sanitation to a village in India. Others might produce social value through direct or indirect employment.”

The varied meaning of the concept of corporations’ social value along these two axes of products versus production processes posed a critical challenge to the intended function of a measuring device in the field of impact investing (Monitor Institute 2009). Ideally, as outlined earlier, the problem of value in a market is solved when a consensus is reached about the criterion of worth for the goods in question (as recognized and made real by a measuring device), thus creating the ability for market members to compare commodities in the same way. Yet, when value is varied in nature, different actors bring distinct meanings of the concept to the project of commensurability. For the case of Impact Investing, the resulting concern was that a measuring device that carried within it a single quality of social value would be rendered useless, as each actor sought commensurability only for investment possibilities that met her own definition of social value. As one recent report on impact investing concluded, “Since various actors have diverse views on what matters, it is challenging to achieve agreement on a single metric or approach” (Harji and Jackson Reference Harji and Jackson2012:47).

Similarly, in an overview of the state of Impact Investing, Mark Kramer, a long-time scholar of performance measurement for social purpose organizations concluded, “social returns are not fungible like financial returns. An investor might be neutral between two investments with the same financial returns, but that doesn’t mean he would be indifferent to the choice between an impact investment that created USD 1 million in reduced carbon emissions, compared to one that produced USD 1 million in additional income to impoverished farmers in Africa. One cannot compare two completely different impact initiatives” (Credit Suisse 2012:11).

In result, GIIN modified its efforts to solve the “value problem” in the market of impact investing. It sought to develop the capacity for calculation that did not impose a single meaning of social impact on all market members but rather provided the capacity for commensurability and ranking in a tailored way, contingent upon the investors’ values. One early report on the future of the field concluded: “We need to find a metric that preserves each investor’s flexibility at driving toward their individual impact investment objectives” (Monitor Institute 2009).

Impact Reporting and Investment Standards (IRIS)

Developed in 2008 by the GIIN along with the Rockefeller Foundation, the Acumen Fund, and B Lab, the IRIS consisted of a standardized reporting system to be used by local companies to report on their performance. IRIS consisted of a “universal language” of impact investing, based on over four hundred metrics covering firms’ financial, social, and environmental performance. Each metric includes a precise definition of the term and a prescribed indicator. This taxonomy of firm performance included an organization description, a product description, financial performance, operational impact (i.e., information on a firm’s CSR to stakeholders), and social impact (GIIN 2014). Take the case of “school enrollment,” which IRIS defines as “number of students enrolled as of the end of reporting period, both full-time and part-time, where each discrete student is counted regardless of number of courses.”

Offered for free as a “public good” by GIIN, the creation of IRIS was intended by value entrepreneurs to address the problem that common terms were being used in impact investing to describe a firm’s goals, but they were being defined and measured differently, making commensurability difficult for market actors (Harji and Jackson Reference Harji and Jackson2012). As a standardized reporting system, IRIS was designed by its creators to play the same role in impact investing that the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) played in mainstream investing (Bouri Reference Bouri2011). In the words of the salient value entrepreneurs: “IRIS is designed to address a major barrier to the growth of the impact investing industry – the lack of transparency, credibility, and consistency in how organizations and investors define, measure, and track their performance” (IRIS 2013).

To construct IRIS, and reflecting the goal of GIIN to incorporate existing double bottom line vehicles and fields into a single market of impact investing, value entrepreneurs incorporated the dominant reporting standards that already existed for the fields that together composed Impact Investing, including microfinance vehicles and SMEs. “A crucial element of creating these standards is convening leaders within the prominent subsectors of impact investment (e.g., community development, international development, environmental investing, etc.). These leaders can build from existing practice to develop consensus for standards tailored to the specific investing issues in each area” (Bugg-Levine and Goldstein Reference Bugg-Levine and Goldstein2009:35). For example, in the case of microfinance, IRIS drew from the existing work of the Microfinance Information Exchange in generating measures of social impact and in sharing data. In industries with no reporting standards, IRIS staff worked with evaluation experts in the field to devise comparable indicators (Bouri Reference Bouri2011; Kanani Reference Kanani2011).

Using IRIS, local firms in the field of impact investing were expected to report annually on their performance and submit the data to GIIN. GIIN would then collect the resulting reports and aggregate the data in order to generate information on the performance of the market as a whole and for the purposes of commensurability by industrial sector (such as access to financial services, agricultural products, or clean, alternative energy) or by geographical region (IRIS 2011). “IRIS will also aggregate social performance data and release benchmarking reports that enable impact investors to compare investments against their peers – a capacity that proved central in the growth of mainstream venture capital and private equity” (Rockefeller Philanthropy Advisors 2010:122).

IRIS was critical to how proponents of Impact Investing sought to address the value problem in this new market. By incorporating a range of different dimensions of financial, social, and environmental impact in its taxonomy, IRIS then allowed for the presence of a varied conception of “investment return,” both in terms of the relationship of social value to financial value and in terms of the multiple meanings of social good present in the field. IRIS facilitated firms’ reporting on many of the existing conceptions of social value by specifying the needed metrics of a firm’s inclusive organization of its value chain, its just and equitable treatment of stakeholders, and its sale of socially beneficial products. By incorporating metrics of these different regimes of value, IRIS allowed for a wide range of investors with different impact objectives to employ this data in order to make comparisons across investment options. In an article on the construction of IRIS, a senior executive at GIIN explained: “Impact investments are a result of investors’ management of their investments toward the creation of specific social or environmental benefits along with financial returns. Managing these multiple factors requires a credible, consistent, and rigorous set of metrics that includes social, environmental, and financial performance indicators” (Bouri Reference Bouri2011:148). Similarly, the online guide to using IRIS emphasizes that: “There is no single combination of metrics that is right for everybody; that’s why IRIS is designed as a catalog that you can browse to find the most appropriate metrics for your work … IRIS is a useful resource for impact investors working around the world, in different sectors, and with a variety of social and environmental impact objectives” (IRIS 2015).

Yet, as publications on IRIS admit, this tool is limited to the generation of comparable data based on investors’ preferences. As a measuring device, IRIS does not engage in the act of commensurability (Espeland and Sauder Reference Espeland and Sauder2007) – it does not evaluate and rank investment opportunities according to a particular criterion of worth (IRIS 2015). Investors “need to know not only that everyone calculates metrics like carbon tonnage or defines terms such as “low income” the same way, but also how those reported metrics stack up against those from comparable companies and against a generally accepted set of benchmarks for low, medium and high impact investments” (Krogh Reference Krogh2009:17). To facilitate investors’ comparison of investment opportunities, proponents of Impact Investing then constructed multiple measuring devices to perform such a task, with each tool recognizing distinct understandings of the meaning of social value in this field.

Global Impact Investing Report System (GIIRS)

Begun in 2009 by the B Lab (an independent nonprofit) in conjunction with the GIIN, GIIRS is an independent, third party ranking system of the social and/or environmental impact (but not financial performance) of either a double bottom line company or investment fund. GIIRS’ ratings were intended to be analogous to Morningstar’s investment rankings or S&P credit risk ratings. Using data provided by respondents in response to a B Lab survey of 50 to 120 questions concerning companies’ production processes (employing IRIS definitions and indicators), GIIRS provides a total rating (out of a possible total of 200 points) of the company or investment fund based on an aggregation of their provision of a several dimensions of positive social and environmental value, as weighted by a company or fund’s geography, size, and sector. These scores could then be comparatively employed by companies and funds seeking investment and by potential investors hoping to identify those opportunities that provide the most social/environmental return (Bouri Reference Bouri2011; B Lab 2012).

The conception of social good inherent to this ranking system reflected the effort by GIIRS’ value entrepreneurs to incorporate a wide range of existing conceptions of social value present in this field. On the one hand, GIIRS positively scored a company according their possession of a specified list of appropriate practices taken from the fields of CSR and RI, concerning firms’ treatment of stakeholders, including governance, workers, community, and the environment. For example, in the area of workers, GIIRS (2012) awards points for the presence of desirable practices concerning “compensation and wages, worker benefits, training and education, worker ownership, job flexibility/corporate culture (developed markets only), human rights & labor policy (developing markets only), management and worker communication, and occupational health & safety.”

However, GIIRS also awarded points to a firm or fund for the presence of what it calls “intentional business models,” including the sale of socially or environmentally beneficial products and the presence of value chains that facilitated ownership models designed to increase wealth and decision-making power of historically underserved stakeholders (e.g., SMEs). Rather than valuing firms for their performance in this regard, GIIRS instead converted the presence of these inclusive production processes and products into the appropriate category of a firm or fund’s treatment of stakeholders: governance, workers, community, or the environment. So, a firm that focused on workforce development would receive points in the relevant impact area of the community, as one instance of the practice of equitable compensation, benefits, and training. In sum, as a measure of social value, GIIRS subsumed attention to the market inclusion of the poor (as suppliers, employees, and customers) (as central to Impact Investing) into the stakeholder-centered criteria of social value, as found in the fields of CSR and RI (GIIRS 2011, 2012). The result was a rating system that evaluated firms according to a single quality of worth.

ImpactBase

Begun in 2009 by Imprint Capital Advisors and RSF Social Finance and then taken up by GIIN in 2010, ImpactBase is a searchable online platform that allows impact investors to evaluate investment opportunities according to criteria of their choice. Service providers, including funds and firms, provide to GIIN an annual report, which includes an overview (including fund manager track record, fundraising status, location, and current investors), a financial section (including detailed information on a fund’s financial strategy including target returns, asset class, and investment size) and an impact section (including a fund’s impact strategy, including impact goals and the measurement of social and environmental metrics) (GIIN 2015c).

Investors then could employ ImpactBase to compare data on potential investment vehicles based on their own specific search criteria, including both financial performance (including asset class, fundraising status, and assets under management) and/or social or environmental issues (including a list of pre-specified “impact themes” and geographic targets) (GIIN 2015a). For example, an investor interested in service providers focused on clean energy in Africa would choose only investment opportunities with that mission and location. Upon selection of their search criteria, investors were then provided with a summary of financial, operational, and social impact data for all qualifying firms or funds.

As with IRIS and GIIRS, ImpactBase was framed as akin to similar devices in mainstream investing; in this case, it provided the same type of data for impact investors as is produced for a traditional investor by investment research firms (as outlined in the case of Socially Responsible Investing in Chapter 4) (UBS 2011). As one presenter explained to a crowded audience at a conference on impact investing, “ImpactBase basically does for an impact investor what J.P. Morgan or Deutsche Bank has done to date for a regular investor – it gives them the information they need to make an informed decision.”

While GIIRS provided a rating system for a notion of social value based only on firms’ treatment of its stakeholders in its production process, ImpactBase was devised to allow for the estimation of social value based on any criteria of worth, recognizing the varied and subjective nature of social value for many members of this field. It was specifically designed by its value entrepreneurs to address the challenge of commensurability in this market, given investors’ varied balance of financial and social return and multiple meanings of social value. To do so, the website solicited from investors their definition of the type of social return they hoped to achieve from a wide list of pre-arranged list of options, as guided by IRIS’ taxonomy, and so included the options of a firm’s products, inclusive business models, and/or treatment of stakeholders. Having specified their preference, the investor then was provided by the website with data on the social performance of all investment opportunities that aligned with her specific definition of social value (GIIN 2015a).

For example, an impact investor interested in facilitating women’s participation in the workforce would choose that impact theme and then be able to compare the performance of those funds, drawing from data based on the salient IRIS standardized measures of social impact for those organizations. Another impact investor who wanted to support firms that provided children with access to low-cost health services would similarly specify that goal in his ImpactBase search, and he would then be provided with comparable information on relevant funds and companies.

However, while ImpactBase provided the germane data on all impact investing opportunities for an investor, it was up to each actor to engage in the ranking of those options based on their own weighting of social versus financial issues. In an interview, one senior Rockefeller Foundation staff outlined precisely such a use of ImpactBase, giving the scenario of a fund manager who wants to invest in local farming cooperatives in developing countries. By using ImpactBase, the respondent outlined, the “manager is able to easily access a range of investment vehicles that address this concern. They can then employ the impact reports provided by Impact Base in order evaluate their investment opportunities. They can choose to evaluate these options based on total amount of social impact that their investment would produce or they might assess their options based on a ratio of investment cost to return. Or possibly some other consideration might be relevant. It’s up to them.”

In all, proponents of Impact Investing faced a particular challenge. They sought to create a market that was based on a social project centered on a belief in the capacity of investment to generate both financial and social return. In their initial articulation of the market, advocates sought to mimic the structure of mainstream finance in order to increase the potential pool of investors. To address the value problem, they envisioned a single, standardized meaning and metric of social value across all investments, as supported by the formation of a suitable measuring device. Yet, the varied contrasting preferences of investors altered the communicative goal of value entrepreneurs. These actors ended up solving the “problem of value” in this market in ways that recognized the varying goals of investors, both in terms of their weighting of financial versus social return and in terms of their varied definition of social value. Drawing on their knowledge of mainstream investing, these value entrepreneurs transposed the devices and vehicles of valuation from the traditional capital market to this new setting, modifying them to align with the presence of those multiple registers of value. The construction of the three component parts of the valuation infrastructure of this market, consisting of IRIS, GIIRS, and ImpactBase, would provide any and all investors with standardized, comparative data that then allowed them to engage in the relative evaluation of investment options no matter what their own criteria of worth.

More broadly, for the purposes of a theory of social value, the case of impact investing allows us to see how a commitment to a kinder, gentler vision of capitalism need not necessitate a particular type of measuring device that employs the currency of money or prioritizes shareholder value over all else. Here, despite the dual commitment to both economic and social return present in proponents’ articulation of the field’s social project, the resulting valuation instruments were intended to address a range of investors who held contrasting understandings of the purpose of market activity and the meaning of social good.