Earlier this year, our company was commissioned to develop an investment evaluation framework for a group of high net worth individuals who were exploring the development of an ecolodge in Rwanda as a means of addressing, at least in part, the social challenges stemming from the genocide and the ecological stress of decades of environmental neglect plus the repatriation of survivors to previously unoccupied areas that lack the necessary carrying capacity to rebuild communities.    

Depending on how you read it, that last paragraph describes either a worthy attempt to use commerce and local assets to help solve a social problem or a grandiose vision that seems unattainable even with the best of intentions. As such, there are a few key questions you might be asking yourself:

1) What on earth is an ‘impact evaluation framework?’
2)    How does one set boundaries around this almost limitless challenge?
3)    Can a single ecolodge really make any difference to the people and ecology of a devastated country like Rwanda?

What on earth is an ‘impact evaluation framework?’
Think of this as social and/or environmental due-diligence. Any seasoned traditional investor will undoubtedly research the company s/he is about to give money to or the NGO about to get funding. They’ll base their decision to invest on some expectations of past performance, expected future returns, etc. What is often missing from those investigations is to what extent does this investment help or hurt local communities and ecosystems (excepting government-mandated environmental impact assessments). As social investment—financial relationships designed specifically to benefit people and planet— continue to grow, this type of evaluation becomes exponentially more important.

For our ecolodge project, SVT developed what we call the “ECOframe”- the Ecolodge Choice and Evaluation Framework. The Framework gives investors/funders/donors a linear process by which to determine their own priorities, evaluate opportunities, set expectations and ultimately create a dialogue with their investees/grantees.

How does one set boundaries around this almost limitless challenge?     
This question has no easy answer, though one is absolutely required for any social enterprise regardless of issue area, geography or financial structure. Answering this question allows an organization to set goals, prioritize them, manage to them and ultimately produce continually increasing social and environmental returns.

You have likely heard the saying “what gets measured gets managed.” While that may be true, it is only half the story. Einstein’s view on this helps paint a much cleaner picture, as he is usually credited with saying, “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” Thus, it is critical to first determine what matters enough to be measured, then what from that set of things can be measured and finally what should be managed to ensure maximum positive impact for the resources available.

For the ECOframe, we developed a defined process for determining what information should be collected and can be managed to. This process clarifies characteristics about the addressable challenge, the value the project can (and cannot bring), the primary and secondary stakeholders, key indicators for tracking social value, and quantifying and analyzing results.

Going through these steps adequately allows both the investor and the enterprise itself to clarify goals, assess the value created/to be created, include key stakeholders, continually improve impact and ultimately to tell a story. Of course there is an art to each of these steps...

Can a single ecolodge help the people and ecology of a devastated country like Rwanda?
This third question is a fair one and must be asked of any impact-driven investor, funder or ground-level manager/implementer. It is true that the answer might be no. That is ok. This is the equivalent of market research for a new consumer product and is critical for any endeavor. Supplier passions alone do not drive market demand.  But, by running a project through a process like ECOframe, it is possible to not only determine if positive impact will be made, it is further possible to allow managers to set expectations of impact and work to continually improve upon them, thus simultaneously maintaining control and having an open dialogue with project supporters, thus shifting the focus from ‘all or nothing’ results to management skill and growth.

For the Rwanda ecolodge, we were able to determine that should the lodge be built, it would indeed benefit the local community and ecology in the ways in which it could control—namely through employee hiring practices/wages, access to healthcare and education for families of staff, energy efficiency/composting/construction materials, etc. Can this one ecolodge truly solve the tremendous social and economic strains in the area? No. Should its success be judged by its ability to do so? No. Can it help improve conditions and act as an example for similar social investments in the area? Absolutely.    

In our next post, we’ll address a fourth question that may be on your mind… are all investors the same and if not (they’re not), how do tools like ECOframe accommodate their differences?
 

As this blog posting will go live on election day in the US, I wanted to take a moment to preflect, to look ahead at a plausible future, rather than to dwell on the short-comings of the recent past. We have a real opportunity to reposition the United States as a global leader once more, though as the Economist put it a while back, with brains not bullets.

I have just returned from a three week road trip with stops as wide-ranging as New Jersey and Amsterdam. A little bit of Maine, Pennsylvania and throw in some New York City and DC, add in conference attendees from all over the planet and two things are very clear: EVERYONE is watching the US election, and everyone has an opinion about America. Well, maybe not everyone- I know there are pressing issues around the world that do not involve the US today. But being an American abroad... it sure feels like all eyes are upon us.

Perhaps what struck me more than anything is this—people around the world actually care about America. We are quite unpopular globally; we are seen as invasive, destructive and hypocritical. As we face what is by far the most important election in a generation if not more, it would not have surprised me if citizens of the world wanted to see us fail once and for all... to finally add that last nail in our geopolitical coffin. But they don’t. They want to see us get it right. They would rather see a United States that rebuilds its power and uses it for good, with respect, intelligence and a sophisticated world view, rather than us fade into darkness. 

So what is the America that could be? If I were to preflect on a vision, it would be—at least in part—one in which we rebuild our economy by investing heavily in the resources of the future. Renewable energy of course, but also innovators and entrepreneurs who are willing and able to provide a new means of making investment decisions and addressing the challenges the world community faces. One in which due-diligence includes understanding how any investment might perform not only in a financial sense, but also the impacts for people, communities and the environment. In the last few months we’ve learned critical lessons about investments in companies that grow by feeding on their own foundations. We now have an opportunity to start again, to take a new approach that insists we ask questions about the impact, and sustainability, of our investments.

A new view of investment need not necessarily mean a tradeoff in financial return, though it might and that can be good as well. Many of us believe that the investments that will produce the highest financial returns, at least in the long run, will be those that are not only sustainable in that they don’t consume more than they produce, but that are actually regenerative. We now have a ‘do-over,’ a chance to try a new approach that might allow this country to stand as an example of investment that brings returns on all fronts.   

Though I put forth this entry on election day, make no mistake this is not a partisan issue. Democrat and Republican alike, regardless of campaign trail rhetoric, must craft a new vision for America. One in which personal aspirations are not necessarily pushed aside, but one in which people achieve their own success directly by helping the planet and all its inhabitants—human, animal, plant or otherwise. This is no easy task, and may require incentives and education, but if as a country we demand this new direction, we can much more effectively direct the resources we have—natural, financial and human. We have the opportunity to be proactive, not reactive. The world is with us. We can do this. 


 

 

Market Size
What is a good result? What is the proper frame of reference? To get at the answer, we’ve borrowed from the concept of an addressable market. The addressable market is the total potential market for a product or service, measured in dollars of revenue per year. If we apply this concept to impact, we can define addressable impact for any situation; in other words, the total potential social or environmental problem that could be solved by a given solution each year.  For example, an organization that helps the homeless transition to stable housing might consider its total addressable impact as the 10,000 people who are homeless each year in the city where it provides services.  An ecotourism venue might consider its addressable impact maintenance of the current level of biodiversity on its property.

The importance of the addressable impact is twofold. First, it allows for the definition of a clear goal (or set of goals) according to which an organization can manage its resources. Stay focused, don’t over-reach, and continually improve. Second, it alleviates the need to singlehandedly solve a major societal problem in total—to ‘save the world.’ No one organization can solve it all and each will invariably work with other groups to address large challenges. Thus, defining the market one can address is critical to managing and communicating the change one is most capable of making. Social and environmental change is not a zero-sum game for any organization. 

Relative Value
From a social or environmental impact perspective, the value an organization brings is, at least in part, a function of how big a slice of the addressable impact pie the work addresses. Preventing the highest number of malaria cases possible may be the obvious goal if the addressable impact is eradicating malaria in a certain population. But it is imperative to understand the way the addressable impact is also a function of the context. Saving ten hectares of old-growth redwood or endangered mahogany may be of higher value than saving 100 hectares of uncontested grassland. The “difficulty of the dive,” to quote Kim Smith of New Schools Venture Fund, must be rated, since it may be much harder, for example, to increase the graduation rate or create living wage jobs in one neighborhood than in another.  And comparing the value of a given measure can be tricky in one setting versus another without a clear frame of reference. Take for example ‘tons of carbon reduced’: preventing one million tons of emissions per year sounds impressive, but not if you are still producing another 99 million.  Defining the relative scale, relative difficulty and relative context of the addressable impact and of results achieved is necessary to measure and communicate the true value of impact.

While that’s quite a lot to think about, the good news is that it is possible to break down the steps into a manageable and consistent process.  The most important idea behind addressable impact is that, just as a single restaurant doesn’t open with a mission of feeding all the town’s people, nor should an organization try to solve everyone’s challenges at once. It is always possible to scale up over time.

To be sure, the addressable impact is not something that is set in stone. Targets and goals should always be checked and rechecked and readjusted as necessary. The ideal situation, of course, is to have improved performance while also addressing a growing market.