IB Impact Assessment

ADB-IDB-FRI Workshop for Japanese Companies

28 Feb 2013, Tokyo

For inquiries: Dr. Armin Bauer,

Principal Economist, Regional and Sustainable Development Department, Asian Development Bank, abauer@adb.org, Tel: 0063-2-5550

What we will discuss

1. 2.

3.

4. 5.

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What is Impact Assessment for Inclusive Business? Principles of Impact Measurement Main Criteria: reach, depth, relevance, systemic changes, scalability, innovation Tools in the market 5-step ADB tool: eligibility gate, route to impact, scoring, target setting, portfolio assessment Further reading

What is Inclusive Business?

Inclusive Businesses are Commercially viable profit-making private companies Whose core business solutions are designed To address pressing social (and environmental) issues for the poor and vulnerable by engaging the poor ($3) as producer, employee, distributer, or consumer through the provision of goods and services relevant to the poor, or Income and decent work opportunities In a manner that results in a measurable improvement of their living standards and a systemic contribution to poverty reduction
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What is Impact Assessment?

- impact on poor people (not $)

No compromise on financial due diligence and returns

The Base of the Pyramid East and South Latin Southeast Asia America Asia % of population (2009) the rich

Social impact
The simple answer

Reach (directly benefits the $1.25, $2, $3 poor)

65.9 94.1 88.4 70.9 36.0 1,586.7 31.4 22.0 12.4 6.5 569.5 inclusive business

the lower and upper middle class

The more complex picture

Depth and impact channels Relevance for poverty reduction and inclusiveness scale and growth

53.0 33.2 14.3 1,983.1

vulnerable ($3, $4)

poor ($2) very poor ($1.25) Total popuklation (million people)

Sources: World Bank PovCalNet (24 Aug 2012 update), ADB Key Indicators 2012

Principles of Social Impact Measurement

Financial return is not part of the tool

Its not about measuring rate of returns (size of profit) It is also not about general impact investing (environmental or other impact)

Principles of measuring the social return

social impact on low income people ($3, social exclusion) Focus on contribution rather than attribution Range of impact: direct, indirect, systemic Reach and depth of impact Ex ante tool based on project concept (not ex-post impact
outcome output activity input ressources necessary (money, people, ) impact systemic change in live of people (project +) change in the live of peopkle directly related to the project result of activity

measurement)

Understanding the impact chains We favor assessment over self-reporting Quantifying before and after / with and without solutions Simple and affordable; and easy to report on 5

What are the criteria? (1)

Overview

Reach Depth Relevance Scale Innovation Systemic contribution

ISIS gives some criteria, but this is not enough

Social Impact Measurement (2)

Reach

Note: targets for ranking are sector specific

Social Impact Measurement (3)

Depth

Social Impact Measurement (4)

Relevance (for poverty reduction)

Innovation Scalability Replicability Relevance for the country Sustainable profitability for the firm

Why should companies measure the social impact?

Reduces risks

Enabling environment for the business

Captures opportunities

Innovation Value chain

Reporting is good for shareholders and public

Impact Measurements Tools

Assessment of the WBCSD

The World Business Council for Sustainable Development (WBCSD) is a global CEO-led coalition of some 183 international companies from over 35 countries and 22 sectors, with a shared commitment to sustainable development. Collectively, members represent an estimated* :

15 million employees 7 USD trillion annual revenues 6 USD trillion market capitalization

WBCSD member companies

What the others do - WBCSD (1): profiles 10 existing tools.

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What the others do - WBCSD (2): Criteria

Strategic fit: fuel innovation, strengthen value chain, improve business environment, Levels of analysis: site, value chain, business line, company operations at national level, company Guidance included: setting scope, selecting indicators, gathering data, interpreting results Metrics: input, activity, output; outcome and impact; flexible

Data requirements: internal company data, external data collection, flexible

Developer services
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What the others do

- WBCSD (2): what fits best to companies needs?

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What the others do - ADB study

Global Impact Investors Network (GIIN): developed the and a

Impact Reporting and Investment Rating (IRIS): Set of indicators companies or funds can chose from for self reporting; common langue for reporting social and environmental impact, Not context specific

Global Impact Investing Rating Scheme (GIIRS): Weighting and rating (1-5 stars) social and

environmental impact; but can we compare and do we capture change?

Economic and Social Rate of Return calculation very complex and often misleading Aspen Network of Development Entrepreneurs (ANDE)s core set of metric: Revenue, employees, wages, additional finance mobilized, greenhouse gas emissions avoided

IDB: rating tool; social impact = 50%: number of beneficiaries, cost per beneficiary, innovation factor, role of BoP, scalability, replicability

KfW/DEG: impact rating system: combination of social, financial and economic returns IFCs Development Outcome Tracking System (DOTS): focus on growth and jobs; financial performance, environment-social=governance standard, private sector development

WBCSD: overview

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ADB Impact assessment tool (for managing a portfolio) - 5 Assessment steps

A tool for a fund manager to assess individual possible deals, not for portfolio screening
1. 2.

Eligibility gate: financial soundness, good business case, social inclusiveness Routes to Impact (smell test): how does the company achieve the combination of financial and social objectives: unmet development needs, proposed inputs, planned outputs, anticipated outcomes, anticipated impact, alignment of social and financial objectives investment decision

3.

Scoring (1-10): social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage change, systemic impact (innovation and

scalability), distribution and use of company profits, relevance and critical need for the poor,
internalization of inclusiveness in the companys business culture
4.

Setting Targets: for each project, in consultation with company, along the routes of impact, direct and
indirect impact, data point should be referenced to the IRIS set of indicators

5.

Assessing the Fund Managers performance: impact coefficient, payment 17

ADB IB Impact Assessment Tool

Step 1: Eligibility

General criteria: Geography Sector Core business

Social criteria
IB is at the heart of the proposition Clear and well defined route to impact Clear and ambitious targets Compliance with basic social and environmental standards Compatable with long-term sustainability Financial criteria Credible sponsor Quality business strategy

Properly managed impact on wider stakeholders

ADB IB Impact Assessment Tool

Step 2: Describe (and rate) the routes to impact (smell test)

How does the company achieve the combination of financial and social objectives? What are the unmet development needs? What are the proposed inputs, planned outputs, anticipated outcomes, anticipated impact? How are the social and financial objectives aligned investment decision
Social impact channels: Distribution channels; key beneficiaries, gender dimensions Impact channels (e.g. employment, social and municipal services, social protection, consumption implications on income and living situation) Systemic contribution to poverty Mitigation of risks for people Other impact channels Financial soundness Environmental sustainability Governance issues

ADB IB Impact Assessment Tool

Step 3: Score the project (H-M-L; 1-10)

1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test):

3. Scoring (1-10, or high-medium-low; weights depending on ADB strategic priority):

social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage change, systemic impact (innovation and scalability), distribution and use of company profits, relevance and critical need for the poor, internalization of inclusiveness in the companys business culture

Good business case conditions: alignment of financial and social objectives, value for money (cost per

beneficiary), management of negative social, environmental, governance impact, proven quality of

financial performance, quality of strategy

4. Setting Targets 5. Assessing the Fund Managers performance 20

ADB IB Impact Assessment Tool

Step 4: setting targets

1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring

4. Setting Targets for systemic change on poverty reduction and inclusiveness

Fund manager / institution / company will set targets for each project, in consultation with company and ADB

Along the routes of impact Direct and indirect Data point should be referenced to the IRIS set of indicators

5. Assessing the Fund Managers performance

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ADB IB Impact Assessment Tool

Step 5: Assessing fund managers performance

1. Eligibility gate: financial soundness, good business case, social inclusiveness

2. Routes to Impact (smell test): 3. Scoring 4. Setting Targets for systemic change on poverty reduction and inclusiveness

5. Assessing the Fund Managers performance (impact coefficient)

Principles
incentives to select business ventures with significant pro-poor and inclusive business impact Maximize not only commercial returns

Nothing without social impact Quantitative and qualitative matrix to determine the impact coefficient (UBS):

Impact coefficient
Investment policy target Investment target on Pro poor reach Achievement of specific targets (incl. innovation of IB business models promoted) Quality of reporting

22 Reward the fund manager through the carry (15%+5%+5%)

ADB Impact Assessment Tool

- Reporting
For the investment committee

Initial screening Investment approval Portfolio management and monitoring

Reporting to ADB / development partners

Core metrics: number of beneficiaries, route to impact, revenue and profit generated, additional capital mobilized,

Company specific metrics: output and outcome indicators Additional qualitative indicators, e.g.: empowerment of the poor (organizing in cooperatives, involvement in companys decisions), engagement of NGOs, change sin government systems

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More information
ADB: Inclusive Business website
http://www.adb.org/themes/poverty/inclusive-business-base-pyramid The IB Impact Measurement Tool:
http://www.adb.org/sites/default/files/Chapple__Apr_2012__IB_Impact_Assessment_Tool.pdf

Overview of Impact Measurement:

http://www.scribd.com/doc/80720133/Impact-Assessment-Tools-Review

IFC: http://www.ifc.org/inclusivebusiness

IDB: http://www.iadb.org/en/topics/opportunities-for-the-majority/idbopportunities-for-the-majority-serving-the-base-of-the-pyramid-in-latinamerica,1377.html

WBCSD Impact Measurement Framework:

www.wbcsd.org/impact.aspx
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More information on the ADB tool

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ADB Impact Assessment Tool - 5 Steps

Eligibility gate: financial soundness, good business case, social inclusiveness

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