How do we know what difference impact investing makes? We commissioned an impact audit to assess our impact investment fund.
When Nesta Impact Investments 1 (NII1) was launched in 2012 it was one of the first impact investment funds in the UK. At the core of its investment approach was a commitment to rigorous evidence; ensuring that each investment would have a measurable positive social impact as well as a financial return.
In 2016, based on lessons learned over four years of impact investing, Nesta Impact Investments revised its strategy for impact. The key points of this revised strategy were:
The impact audit was commissioned as part of this commitment to transparency. The audit was intended to assess the extent to which our new strategy was embedded in practice and to compare our approach to other approaches in the industry, in order to understand how it might be strengthened.
We believe this to be the first learning-focused audit of its kind in the UK and the first publicly available impact audit of a UK impact investment fund.
Our auditors, Itad, conducted this audit using a rapid, participatory and learning-focused approach, engaging stakeholders and gaining feedback as the audit progressed. Itad interviewed all NII staff and members of the Investment Committee and three investees; reviewed all documentation including frameworks, tools, and reports along with external reporting; observed key meetings and forums including Investment Committee meetings and an Annual General Meeting; conducted a literature review of selected recent industry impact monitoring and management frameworks and industry practices; and, facilitated an analysis workshop with NII and Nesta colleagues. The scope and depth of the audit was tailored to fit a proportionate budget and short timeframe.
We welcomed the publication of what we consider to be a well-researched and thoughtful report from our impact auditors, Itad.
The key findings for us were:
This impact audit has helped to set our priorities for the development and refinement of our impact strategy over the next 12 months. Our top three priorities will be to:
Our goals for this audit were:
The first goal has certainly been met. The benefit to our internal learning has been clear and the audit has provided us with reassurance about our strengths as well as a clear pathway for improvement.
Whether this provides the external credibility and transparency we desired, is too soon to tell, but we have received a lot of interest from stakeholders even before the report has been published. Itad proposed that, for our next audit, we appoint an independent audit panel with representation from investees, investors and other fund managers. We agree that this would serve to strengthen the transparency of the process and will certainly consider this for our next audit in around two years from now.
The benefit to our internal learning has been clear and the audit has provided us with reassurance about our strengths as well as a clear pathway for improvement.
In terms of cost-effectiveness, the financial cost was also relatively low compared to other evaluation approaches. If this audit was carried out every two years, it would have the same annual cost as a financial audit. As expected, the audit increased the workload for the Impact Director for a few weeks but the extra workload for the rest of the team was minimal. If we seek to treat social impact as seriously as financial success then this is entirely proportionate. We believe this is a very promising approach for actors in the impact investment industry to be sure that standards are being met.