What is the likelihood that an enterprise’s impact will differ from expectations?
This module focuses on Impact Risk. Like its financial counterpart, Impact Risk assesses the likelihood that an enterprise’s impact performance will diverge from expectations. The Impact Management Project, in collaboration with Social Value International, identified nine types of impact risk for investors and enterprises to consider.
As an introduction to the concept of Impact Risk, this module focuses on the risk types identified by the IMP and Social Value International.
- Impact risk is an essential consideration for investors, but remains a relatively nascent field of impact management, and broadly-accepted methods for assessing and managing impact risk are still being developed
- Investors can still factor impact risk into investment decision-making by integrating qualitative assessments of the nine types of impact risk identified by Social Value International and the Impact Management Project into a cumulative impact risk score for each investment
Key concepts in Impact Risk:
- Nine types of impact risk
- Evidence risk: the probability that insufficient high-quality data exists to know what impact is occurring
- External risk: the probability that external factors disrupt an enterprise’s ability to deliver the intended impact
- Stakeholder participation risk: the probability that the expectations and/or experience of stakeholders are misunderstood or not taken into account
- Drop-off risk: the probability that positive impacts do not endure and/or that negative impacts are no longer mitigated
- Efficiency risk: the probability that impact could have been achieved with fewer resources or at a lower cost
- Execution risk: the probability that the activities are not delivered as planned and do not result in the desired outcomes
- Alignment risk: the probability that impact is not locked into the enterprise’s business model
- Unexpected impact risk: the probability that significant unexpected positive and/or negative impact is experienced by people and/or the planet
- Likelihood vs. consequences of impact risks
Key Concepts: Nine types of Impact Risk, Likelihood vs. Consequences of Impact Risks
Depending on an enterprise’s context and strategy, different types of impact risk may be more or less likely to occur, and may be more or less consequential. Assessing both the likelihood and consequences of different types of impact risk can help investors decide which to evaluate in their impact rating.
Building an Impact Rating: Impact Risk
Compared to financial risk management, impact risk management is a nascent domain of practice. We’ll explore one way that investors can assess and integrate the likelihood that an enterprise’s impact will differ from expectations into investment decision-making.