Three Pillars of Ceniarth’s Impact Assessment

We label ourselves as “impact-first investors”.  The name should say it all.  We must, quite obviously, put impact first in our consideration of investment opportunities.  Yes, we seek to preserve our capital over time, but we must do so without sacrificing our focus.  Interventions that do not address our target communities of interest or that do not have demonstrable impact are simply excluded from our pipeline.

That said, rigorously assessing and comparing that impact across multiple sectors and geographies is far from easy. Unlike financial metrics like IRR (internal rate of return), there are no generalizable equivalents for impact that have proven to be a silver bullet for us. We certainly try to stay up to date as the impact measurement and monitoring market grows and we recognize the valuable work that others have done to develop reporting frameworks.  We have been impressed with the innovative solutions which are becoming more mainstream and work to support ecosystem growth, for example, through our investment in 60 Decibels.  That said, for our practical purposes, we have not relied on an outside framework, but rather have developed our own internal methodology based on some of these industry standards combined with our own values and perspectives.

Ceniarth’s goal of investing to improve the lives of rural and marginalized communities across the globe is the fundamental basis of our impact thesis and is reflected in all investments in our Impact First portfolio.  When analysing whether a deal is high impact and aligned with Ceniarth’s values, we assess the potential across three different pillars. This is alongside and complimentary to our use of the Catalytic Levers  of impact which we developed to categorise our investments.

The three pillars of consideration are (1) Beneficiary impact, (2) Enterprise/fund level impact, and (3) Capital additionality. We produce an internal score based on our sector frameworks which we apply to each potential investment to aid in our review of the opportunity.  Once invested, these scores can also facilitate our understanding of our portfolio and investments across different sectors.  Impact is rigorously assessed from origination, through diligence, and throughout our ongoing monitoring process.

1. Beneficiary Impact

The first level of impact, beneficiary impact, assesses the who, what, and where that the opportunity targets, as well as assessing sector level breadth and depth of impact. For example, for the “who”, we would be assessing the poverty profile of the target beneficiaries, whether there is a specific gender programme in place or other target profiles such as refugees or migrants. We always assess the number of beneficiaries which will be targeted by a specific enterprise or fund, however we also link this to the depth of the impact that will be achieved. We assess by reviewing information connected to improving incomes, increased access to goods and services, as well as other livelihood and lifestyle outcomes.

We have designed sector level frameworks which we apply to the opportunities that are broadly based on industry standard principles and focus on sector specific beneficiary impact factors. For example, in the energy access sector, we would look at factors including the number of households who gained access to electricity from a specific intervention of a whole fund or enterprise.  Similarly, in the agriculture sector, we would look at metrics such as the number of smallholder farmers impacted and percentage income increased.

An example from our portfolio is a recent transaction in the microfinance sector with BRAC International in their Series 2 debt vehicle. We ranked this deal with the highest possible score on beneficiary impact because of impressive depth and breadth of reach, high percentage of which are women and in rural areas predominantly focusing on clients living below the poverty line. Brac International also produces high quality of life increases and other strong outcome indicators showing the depth of their impact.

2. Enterprise/Fund Impact

The next level of impact, enterprise or fund level, depends on whether we are investing in a fund or a direct investment. Factors we would assess for a fund investment would include the type of financial instrument which the fund will use, the geography in which the fund operates, and the product focus of the underlying financial instrument.  We would also look at whether technical assistance (TA) is provided and, if so, the quality of this support. We also try to understand the impact orientation of the institution. This includes factors such as the corporate structure, the impact alignment of the broader investor base, their commitment to impact and their internal impact monitoring and metric system.  In addition, we will assess the diversity of the staff and management based on the context of the fund.  We try not to set arbitrary numerical expectations, but rather to understand what is practically achievable for a specific firm in a given country environment.

When making direct investments, where factors can be translated across companies, we may try to make comparative assessments. These include geography of operation, TA (for certain sector investments), diversity of staff and management, and product focus. We understand that some small companies do not have the scope or the budget for sophisticated impact measurement and management, but we do try to gauge their desire for continuous learning and improving their internal analysis.

An example from our portfolio is our recent direct loan to Food4Education, a not-for-profit organisation which provides subsidized meals to schoolchildren in Kenya. Food4Education scored the highest on our Enterprise Impact assessment due to their alignment with our values, sophisticated impact measurement and monitoring processes and commitment to expansion for greater impact. A fund example which scored the highest on our Fund Impact score is the Global Partnerships IFF 10. Global Partnerships is our most aligned partner who combines responsible risk management with a deep commitment to impact embodying our “Impact First” strategy. They have a strong internal impact practice, with robust pre- and post-investment data collection of underlying MFIs and other social enterprises. Beyond internal tools, GP engages with external parties such as 60DB and publishes regular public impact briefs. 

3. Capital Additionality

Finally, we look at the capital additionality of our particular investment. This is an assessment of the impact leverage created from our investment.  In nearly all cases, the mere fact of investing in an impact-first fund or enterprise generates impact.  There are, unfortunately, very few over-subscribed transactions that we evaluate.  Particularly when below market rates of return are required, additionality is generated simply from participating in the transaction.

Beyond this basic fact, we will also review whether we are taking a junior/first-loss position, whether we might be crowding in other investors, whether we are the first private investor in fund or a direct investment, the timing of our commitment, as well as the specific risk/return analysis based on each potential investment.

An example from our portfolio is our investment in the MCE MESA Fund which achieved the highest on our Capital Additionality assessment due to our early anchor commitment to an investment in a junior tranche with a below market rate of return which unlocked low-cost senior capital from Development Finance Institutions DFC and FMO.

In summarizing, this piece is not meant to be an exhaustive explanation of every impact element that we evaluate, but rather an overview of how we use these three key impact pillars in our analysis. The impact scoring of each potential opportunity is more art than science and is intended to give us our best directional sense of the transaction. We work under the assumption that impact measurement, monitoring and assessment is always complex and that scoring is an imperfect way to assist our understanding of the benefits of our investments. In the end, each impact score is digested and critiqued alongside a broader understanding of the deal, the sector, the wider geography and impact market at the time that the investment was made. We will continue to adapt and update this methodology in continuous pursuit of best understanding the change we can achieve through our investments.

Author: Alexandra Ames is an Officer for Ceniarth’s Impact, Origination, Research, and Strategy team.