Key impact measurement and management trends to watch for in 2024
The world of impact measurement and management is evolving, and while we’re not yet where we need to be, there are many positive strides worth celebrating. As we journey through 2024, certain key drivers of action are emerging as critical pathways towards a more equitable and sustainable future. To help you maximise your impact efforts this year, we’ve identified three drivers of action and three areas of practice development to watch out for:
Driver of action #1: The Rise of Impact Investment
A significant trend to watch is the surge in impact investment. This shift represents a growing movement of capital towards investments that generate not only financial returns but also positive social and environmental impacts.
The current state of impact investing
The Global Impact Investing Network (GIIN) reported that the impact investment market reached $1.16 trillion in 2022, up from approximately $715 billion in 2020. This growth indicates an expanding sector. In the UK, the market size was estimated to be about £58 billion in 2022 by the Impact Investing Institute.
Investor attitudes and returns
Impact investments have been successful in meeting or exceeding financial targets, with around 90% of impact investors achieving their financial goals alongside social and environmental returns. High investor interest is evident, with approximately 81% of investors seeking both financial return and positive societal impact, a sentiment echoed by 84% of respondents in a recent Social Value International poll.
The need for sustainable finance
Significant investment is needed to achieve the United Nations’ Sustainable Development Goals (SDGs) by 2030. The UN Conference on Trade and Development (UNCTAD) estimate that an annual investment of $5.4 to $6.4 trillion in sustainable finance is required. While current investment levels are substantial, they still represent a small fraction of the global equity market, which is estimated at $109 trillion. However, there is a strong will to mobilise more capital towards these goals. It helps that only a fraction of the total equity available needs to be redirected.
Looking ahead
With increasing awareness and more investors recognising the value of balancing financial returns with social and environmental impact, this shift is exciting news for businesses already seeking to ‘do good’. Companies that align their operations and strategies with these principles benefit from enhanced investor interest, potentially leading to greater financial stability and growth opportunities.
Driver of action #2: The evolution of procurement practices
The ongoing evolution in procurement practices, particularly in driving social value and impact, is a key trend to watch. The royal assent of the Procurement Act 2023 in October last year marks a pivotal development set to bring substantial changes across all public sector procurement.
The Procurement Act 2023
The Act is the biggest redevelopment of previous UK procurement law in a lifetime and a key area of change for the UK post-Brexit. It is set to be rolled out this year and will bring substantial changes across the whole public sector commissioning, procurement and contract management cycle.
Key highlights
- Simplified procurement processes: The procurement framework is simplified, aiming to make it more accessible and less bureaucratic.
- Increased transparency: There’s a focus on greater transparency throughout the procurement lifecycle.
- Access for SMEs and supply chain diversity: Opportunities for small businesses are promoted, and supply chains are diversified.
- Adherence to national procurement policy statement: Compliance with policy priorities remains crucial.
- Modern Slavery Act: There are provisions included to exclude suppliers involved in Modern Slavery practices.
- Value for money and social value: It maintains a strong emphasis on value for money and social value in procurement decisions.
Impact on public sector spending
The Act aims to enable the UK public sector to better meet our societal needs whilst supporting UK business and industry. With around £400 billion of public sector spending influenced by procurement practices, the implications of these changes are substantial.
Driver of action #3: The evolution of critical risks
The final key trend to be aware of in 2024 is the evolution of critical risks. Organisations must increasingly focus on managing a variety of risks beyond financial ones. The World Economic Forum’s latest risk report indicates a shift towards social, technological, and environmental challenges, suggesting a need for businesses to broaden their risk management strategies by understanding wider impacts and dependencies than the traditional financial.
Over the next two years, social and technological risks will be prominent, followed by a stronger emphasis on environmental issues across the next decade. Broadening risk management strategies is crucial to prepare for these challenges.
Practice development area #1: Moving from measurement to management
As organisations are increasingly getting better at measuring data, the next phase is for more
decision-making based on impact data to steer our future actions. For this approach to be effective, the data we rely on must be proportionate, to the necessary level of rigour, and transparent in its assumptions and limitations. It should also be embedded in an overall management cycle.
More standards setters and ‘experts’ in this field are recognising the need for impact management (not just measurement). Organisations like the Capitals Coalition, Impact Management Project, and British Standards Institute have developed clear models, processes and systems that more and more organisations are putting into place. This trend will become even more critical this year as we rely on impact data to inform more of our decisions, whether for investment, procurement, or to manage risk.
Practice development area #2: Broadening our understanding of value beyond money
A multifaceted approach to understanding and valuing impacts is important in shaping our decisions and actions. To do this successfully, we must universally broaden our understanding of value beyond financial aspects.
Last October, the Capitals Coalition opened its consultation on the Global Transparency Criteria. This initiative is designed to create a clear and transparent process for assessing valuation factors, making it an essential tool for understanding value and using that data for informed decision-making.
Acknowledging this broader spectrum of value is crucial for effective decision-making as it navigates trade-offs between different areas of impact and value. This approach not only facilitates more responsible and sustainable business practices but also enhances long-term success, building trust with stakeholders by demonstrating a commitment to broader societal and environmental concerns.
Practice development area #3: Building confidence, transparency and accountability
The more confident, transparent, and accountable we are with our data collectively, the closer we get to sustainable impact accounting. The end goal is that we have as robust and standardised an impact reporting process from businesses as we do with our financial reporting.
Critical developments in this area include:
- Sustainability disclosure standards: The International Financial Reporting Standards (IFRS) Foundation has released sustainability standards, IFRS S1 and S2, which organisations will increasingly adopt and report against in 2024.
- Frameworks for impact accounting: The International Foundation for Valuing Impacts and other organisations are developing frameworks and databases for impact valuation and monetisation.
- Accountability and assurance standards: The movement in accountability and assurance is evident with the development of the first sustainability assurance standard by the International Auditing and Assurance Standards Board (IAASB).
These developments aim to build trust among investors, customers, and other stakeholders by increasing transparency on businesses’ progress on their sustainability commitments and moving us towards actually holding each other to account for the social and environmental value we create and destroy, not just the financial. As these practices become more widespread, they will play a crucial role in driving forward sustainable business practices, and the system change we need to address the critical challenges we face.
Conclusion
The trends underscore the need for a shift in mindset across all sectors of society towards a more responsible and sustainable future.
However, this transition requires more than just awareness; it requires action and a commitment to integrating these practices into our daily operations. The journey ahead is challenging but filled with opportunities.
Stay informed with our insights or explore Impact Reporting further by scheduling a demo or contacting our team at 0161 532 4752.