Interrogating the theory of change: evaluating impact investing where it matters most

How is impact investing evaluated? How can and should it be evaluated? Over the past 5 years, there has been solid progress in developing social impact metrics at the industry-wide, firm and investment levels and the industry is becoming increasingly data-rich. Nevertheless, evaluation practices still tend to focus on counting inputs and outputs, and telling stories. Moreover, an important element is too often underdeveloped, invisible, not explicit or missing altogether. That element is theory of change, an approach and tool drawn from the field of program evaluation. This article reviews cases where theory of change has, in fact, been used to good effect at various levels of the impact investing industry. It also discusses a range of qualitative and quantitative methods which could be usefully blended with the theory of change approach, and affirms the equally important imperatives of accountability and learning across all combinations of methods. The article concludes that a more comprehensive application of theory of change to all levels of the field is required -- and especially to the micro-level of individuals, households and communities, where the results of impact investments matter most. Such an approach can help build an impact investing industry that is adaptive, transparent and self-sustaining. To this end, creating an ongoing dialogue between the development evaluation field and the impact investing industry, and designing and launching new education and training initiatives, are key tasks in the years ahead.