Future-Oriented, Forward-Looking Impact Assessment: Navigating the Complexities of Impact Investing. Tutkimustietoa Finsif-stipendiaateilta 2022 4/4

Investing, in general, is very much a future-oriented practice – essentially it is about giving up something in the now with the hopes of gaining more in the future. Yet, when it comes to impact investing, this seems to be even more complex, as there are two time-horizons for predicting financial risk and return as well as the impact risk and return, which may rather happen in the very distant future.

One tool to balance this, and to help with pondering the future, is impact assessment. Impact assessment practices have been widely adapted in the impact investing world. Yet, impact assessment often refers to measurements conducted after the execution of different projects, decisions or investments – measuring and monitoring what was done, which goals were reached, or who was impacted. However, to make these decisions about where the best possible impact gains lie, often investors have to utilize forward-looking impact assessment methods. These methods have multiple names; ex-ante assessment, forecast, anticipation, prediction, foresight, or projection to name a few. These methods are used rather proactively to understand what should be done, what goals could be achieved or who could be impacted.

Forward-looking impact assessment can be defined as a process that establishes a link between impact and the futures. Plurality of futures is emphasized with the understanding that there is not only one set future, but rather multiple possible trajectories that can be impacted. Instead of merely analyzing past actions, forward-looking impact assessment emphasizes anticipating the potential outcomes of a current or proposed investment. It does not (necessarily) mean predicting how the future will be, but rather these methods are used for exploring and describing alternative possibilities of futures, or alternative possibilities of impacts.

Even though the future is in many sense unknowable, unpredictable and uncertain, impact investors need to make investment decisions with future-oriented lenses, for instance, how positive impacts could be maximized and negative impacts minimized, or choosing between investments on the basis of the prospects of being most impactful (as well as profitable). Thus, we conducted a systematic literature review to understand the tools, methods and frameworks that are used for assessing impact with future-oriented lenses. Here some of our main results.

Why assessing impact with future-oriented, forward-looking lenses is important for impact investors?

1. Informed Decision Making: Understand the (long-term) implications of investments, and proactive planning. This can lead to decisions being more risk-resilient and minimizing uncertainties.
2. Goal Setting and Strategizing: Usefulness of future-oriented impact assessments in setting targets, and especially to ”future-proof” these targets.
3. Exploration and Innovation: Forward-looking assessments can lead to new ideas and innovative solutions. It encourages thinking outside the box, ensuring that investments are not only beneficial in the present but also in the future.
4. Coping with Uncertainty: The future is unpredictable, and organizations often face uncertainty when planning. Forward-looking assessments help address these uncertainties, ensuring that potential impacts and risks are understood and planned for.
5. Promoting Cooperation and Collaboration: Assessments can enhance cooperation among stakeholders. They can create dialogue and bring forward different views on what’s important for development. Essentially, deciding upon future, is about deciding what is seen as valuable.
6. Societal Impact: Forward-looking impact assessments aim to ensure that positive societal impacts are maximized. It’s about selecting actions that yield the greatest net benefits for society, ensuring that future societies are better equipped to deal with challenges.
7. Knowledge Sharing: Forward-looking impact assessment is used for knowledge sharing between various stakeholders. It bridges the gap between science and policy, ensuring that decisions are based on the best information available, as impact assessments are knowledge inquiries themselves.

Of course, as said, these methods are not a bullet-proof way to be impactful, or knowing the future, but they can help with exploring how actions today may impact our future world. Either from the perspective of what will happen, what can happen or what should happen. Here is a brief list of example methods:  

Predictive methods (exploring what will happen):
Impact forecasting, life-cycle assessment, social return of investment, impact scoring

Explorative methods (exploring what can happen):
Environmental modelling, multi-criteria analysis, strategic option scanning, horizon scanning

Normative methods (exploring what should happen):
Impact thesis setting, cost-benefit analysis, impact backcasting, impact risk assessment

Kiia Strömmer
PhD Candidate, MA, MSc, , k.strommer@maastrichtuniversity.nl

If you are interested reading more:

References
Strömmer, K., & Ormiston, J. (2022). Forward-looking impact assessment – an interdisciplinary systematic review and research agenda. Journal of Cleaner Production, 377.

Strömmer, K., & Ormiston, J. (2023). Creating spaces to translate between near and distant futures. Academy of Management Proceedings, 2023(1).