We define Additionality as how much of an activity we actually count towards an actor’s impact, given that other actors may have otherwise made similar contributions.
In our work we have begun to assess the additionality of our contributions on two dimensions: Scalability and Neglectedness. This applies to both positive and negative impacts, and to contributions from providing capital and engagement.
Scalability is the degree to which an enterprise can productively use additional resources. This could be about an enterprise taking on more investment capital and using it to buy additional machines or hire more employees. Or it could be a group of engaged shareholders including us in their campaign. This isn’t a metric that can always be directly measured. So we typically score it heuristically/qualitatively with simple scores. That said, if you know a business very well, you could explicitly quantify scalability by assessing how much more productive it would be with twice its current budget.
Neglectedness is the extent to which the supply of resources to an opportunity is limited. It is assessed as the inverse of the amount of capital the market is willing to invest in an enterprise.
-
The more investors are aware of and open to considering an investment in an enterprise, the less neglected it is. And, given a fixed market of potential investors, the more risky they perceive the enterprise to be or the more risk averse these investors are (limiting how much they are willing to allocate to it) the more neglected the enterprise is.
-
As with Scalability, we usually assess neglectedness heuristically. However, useful evidence to support a neglectedness assessment can include how much investment has the relevant industry, geography or asset class historically received. In regards to engagement this would simply be about how many other investors are interested in engaging on this issue and how deeply are they willing to engage.
These dimensions are perhaps different from most of the metrics in the discussion document in that their purpose is to help us assess the ‘additionality’ of our contributions. Whereas most of the metrics in the document seem to be appropriate for assessing contributions before additionality is accounted for. Alternatively, the phrasing on other metrics is rather binary – “that would likely not otherwise occur”. This binary phrasing seems to suggest ignoring contributions below a threshold of “likely”, and including all contributions that are “likely” but not accounting for how some can be much more likely than others (even among “likely” ones). Scalability and Neglectedness help us reason through how likely an effect would have been to otherwise occur. We can then assess our contribution in proportion to how likely it is.
We wouldn’t call these concepts metrics, so we won’t suggest them as such. But we’d welcome inclusion of these concepts in future documents.