The emergence of impact investing over the past decade has been accompanied by an increased interest of practitioners and scholars in the impact evaluation topic, one of the twofold pillars of the such an innovative financial approach. To contribute to the international debate, this study adopts a qualitative approach by obtaining results from a systematic literature review of extant research. This is useful to 1) identify the current existing impact evaluation approaches adopted in the field and 2) derive an empirical analysis in the impact investing sector with a focus on impact measurement in social impact bonds. The study opens interesting insights into recognizing the potential for the whole impact investing field, deriving both from theory and evidence of impact evaluation practices.
TopEvaluation In Impact Investing: Setting The Scene
Over the last decade, impact investing (II) has been of interest to academics and practitioners because of its revolutionary approach (Cohen, 2018; Carè, Trotta and Rizzello, 2018, Trotta, 2020). Agrawal and Hockerts (2019) pointed out the unique factors of II field, clarifying its terminological and definitional distinctions: (1) capital invested, (2) degree of engagement with the investee, (3) process of selection, (4) social and commercial outcomes, (5) reporting outcomes, and (6) government role. More specifically, according to Weber (2013), II is included (together with social banking and microfinance) in the concept of social finance, defined as an “umbrella term” that “strives to achieve a positive social, environmental or sustainability impact”. Similarly, sustainable finance is referred to “as the process of considering environmental, social and governance factors when making investment decisions, leading to increased longer-term investments into sustainable economic activities and projects” (Boffo & Patalano, 2020, p. 11). Because of its proper characteristics, II represents the new frontier of the sustainable finance, significantly improving a positive approach in terms of social and environmental impacts (Trotta, 2020). II is defined as “the allocation of capital with the intention to generate positive social impact beyond financial return” (Harji & Jackson, 2012) or as “the investment made with the dual purpose of obtaining financial and social returns” (Mair & Hehenberger, 2014; Vandebroek et al., 2020). Indeed, according to the GIIN (n.d.), the core characteristics of the impact investments are 1) intentionality, 2) financial returns, 3) range of asset classes, and, last but not least, 4) impact measurement. This last one is a pillar but also a crucial characteristic of II that differentiates this innovative approach from traditional investing, as highlighted by Höchstädter and Scheck (2015). Moreover, II unlocks innovative ways to solve some of the world's most pressing problems while simultaneously providing the financial returns required by investors, often in partnership with governments (Hebb, 2013).. From this point of view, instruments and models of impact investment, such as microcredit, impact funds, crowdinvesting and social impact bonds, have the potential to contribute simultaneously to multiple Sustainable Development Goals (SDGs) of the United Nation (UN) Agenda 2030, emphasizing the role of public-private partnerships. In this regard, Rizzello et al. (2016, pp. 117-118) identified interesting linkages and cross-contaminations among three domains of research in II studies (sustainable finance, impact entrepreneurship, and public policy in the social sector), directly related to the social and investment approaches.
The impact investing market is growing. More specifically, the market for impact investments is proliferating where banks, foundations, funds, government agencies, and high net worth individuals (Weber, 2016; Agrawal & Hockerts, 2019). According to Aljiani and Karyotis (2019, p. 10), a complex web of interactions among numerous stakeholders (i.e., banks, institutional investors, portfolio managers, public, for-profit and non-profit organizations, and social enterprises) characterizes the impact investing channels.