Photo: Root Captial. Diaka Sall, Root Capital's director of lending for West Africa, visits Kuapa Kokoo, a Ghanaian cocoa producer cooperative and Root Capital client since 2011.
Making Use of Social and Environmental Performance Data
Last month, ANDE welcomed the 200th member to our network of organizations that support small and growing businesses (SGBs) in emerging markets. Our members provide direct investment, capacity development services, and a host of related ecosystem-building services that support the growth of small businesses. This was an important milestone for ANDE, and we think it reflects the growth of the sector as a whole.
Since ANDE’s launch in 2009 with 34 founding members, we have emphasized the importance of measurement. We ask members to standardize performance measurement with the IRIS taxonomy, so ANDE can assess the ways that small and growing businesses create economic, social and environmental value across the sector as a whole. In the past five years, we have seen an increasing momentum for standardized IRIS performance metrics. Now we believe we need to shift the conversation beyond metrics, to how that performance data can be put to use.
That is why we were excited to read Social & Environmental Due Diligence: From the Impact Case to the Business Case, the first Issue Brief in a new series from ANDE member Root Capital. The piece moves beyond which metrics they track, to how Root Capital actually makes use of their data.
Before Root Capital makes the decision to invest in a business, a loan officer first investigates its financial, social, and environmental performance, policies and practices. This process ensures not only that the company is creditworthy, but also that the company's environmental and social practices support Root Capital's mission to build sustainable, rural livelihoods.
Root Capital had initially expected that the benefits of their social and environmental due diligence would be non-financial, but found that performance data actually supported their bottom line through risk management, new business development, and more tailored client services. ANDE is not surprised that their social and environmental due diligence serves a business purpose. We would argue that if social and environmental data is not used internally for learning and operations, it is not very useful at all.
This due diligence data doesn’t necessarily point to “impact.” Instead, due diligence is about alignment. The process helps build a better relationship between the investor and enterprise. It matches the investor's criteria and goals with those of the enterprise. ANDE believes that all performance measurement can be a mechanism for alignment and relationship building. In a series of interviews we recently conducted with ANDE members, we consistently heard that measurement supports their relationship with clients. Data can help identify areas where the enterprise might need more support, and support a conversation around performance improvement.
ANDE also believes that the SGB sector needs to integrate the use of social and environmental data into operational decision-making. The business benefits of social and environmental performance measurement may be most visible to financial institutions such as Root Capital and Citi. But we think that all stakeholders in the SGB ecosystem—from multinational corporations that connect to SGBs in their supply chain to nonprofits that support entrepreneurs—should consider the operational value of social and environmental performance data. This will only work if we use data to support a conversation that is focused on action. Alignment must move beyond just selecting metrics to understanding how we can actually implement those metrics to create a more inclusive, thriving market system that supports SGBs and, ultimately, their base of the pyramid stakeholders.
If you’d like to join in on the conversation, please join us or follow along our updates from ANDE’s 6th annual Metrics from the Ground Up conference to be held June 3-4. We hope this year’s theme “Measurement in Action” will help advance the dialogue beyond metrics to collective action, and aligning internal use of data with field-building collaboration.
This is a very good example of how metrics or measurement of performance can be useful to the organization and its stakeholders.