In a previous Insights piece, we described our impact measurement and management (IMM) framework. Here we provide an illustration to help bring it to life.
Let’s take one of our Education investments in Brazil. This company provides a digitally enhanced education platform used by students, teachers, parents, and schools. One of its core products is learning systems, which are an advanced way of delivering the national curriculum to K-12 students. These learning systems integrate printed and digital content to enhance learning, utilising tools such as online homework assessment and in-app communication between families and teachers. Such a model has multiple advantages to a traditional textbook approach:
- Cost: Learning systems are cheaper to deliver, being asset light with only basic material delivered physically on paper. The efficiencies inherent in the digitalized model are passed on to both parents and schools – for parents, the end cost is about 50% less than textbooks[1].
- Relevance: While textbooks are updated every three years, learning system materials are generally updated every year. Moreover, learning system material can be more readily adjusted in response to user feedback. This means students are accessing fresher and more relevant content.
- Consistency: Teachers receive more support, resulting in more consistent teaching. In addition to receiving lessons plans, printed worksheets, and access to a test builder platform, teachers receive training on how to deliver the curriculum. This means that schools are less reliant on individual teachers’ knowledge and skills. This model is particularly relevant in Brazil where 42% and 38% of teachers in primary and secondary education, respectively, do not have the necessary qualifications and experience to teach their classes[2].
- Results: Crucially, learning systems have been shown to deliver better learning outcomes (more on this below).
Theory of change
One of the first steps of our IMM process is to develop a theory of change model for this business (Figure 1). The theory of change helps to identify what metrics we should monitor to check that the company is achieving the anticipated impact. For this company, the most important indicator is evidence that the company’s products are resulting in improved learning outcomes for students. Secondary indicators include outcomes-related metrics such as parent/student satisfaction (to evidence quality of learning experience and levels of engagement).
Five Dimensions of Impact
The next step is a detailed assessment of impact, where we analyse the company from each of the Five Dimensions of Impact[3] (see previous Insights piece for further detail). Figure 2 provides a high-level summary of this analysis.
Translation into impact scoring
We can then apply our proprietary Impact Scoring Scorecard, which is focused on the three pillars of Reach, Criticality and Effectiveness. It is worth prefacing here that our scorecard is designed to push us to be ambitious. The thresholds we set for companies to receive a ‘Leading’ score are intentionally hard to reach. The reasons for this are: (1) we want there to be room for improvement; and (2) we want truly impressive impact to stand out.
A summary of this company’s impact score is provided in Figure 3. In terms of Reach, the company has a ‘moderate’ rating. We have found that education companies tend to score relatively low on this pillar compared to, for example, digital financial inclusion businesses that might reach tens of millions or over 50% of a country’s population through mobile-based wallets.
On Criticality, this business also receives a moderate rating. This is primarily because the company’s traditional customer base is private schools. Private school students are considerably better served when it comes to education than public schools. The company has, however, recently acquired an online platform offering highly affordable tuition aimed at preparing students for university entrance exams. With this, the company may be able to reach greater proportions of lower income and otherwise under-served students.
Finally, on Effectiveness, the company scores High. Effectiveness reflects the quality of the product as well as evidence that it is having positive impact. In terms of quality, the company performs superior to peers as measured by NPS. The company is also making admirable efforts on the evidence front. For example, it has commissioned research into how students using its learning systems improve learning outcomes over time. Results show that schools using its products perform 15 – 18% better than average on national exams (ENEM), and moreover, the longer a school uses its products, the greater the improvement ENEM scores. As this body of evidence grows, we believe the company’s Effectiveness can increase to ‘Leading’.
According to our scorecard, this Brazilian education company scores a total of 7 out of a maximum of 18, which is below the average of 9 scored by education businesses in our universe. However, we see great potential in the company, as its medium-term strategy is closely aligned with greater impact. We believe the company will be able to increase its score in time. Our active engagement can help to accelerate these changes.
Identifying engagement priorities
We originally conducted our impact assessment on this company about 18 months ago. Since then, we have had 17 interactions with management on impact and ESG. We have been impressed by management’s eagerness to engage and by the notable progress already made (see Table 1). This has bolstered our conviction in this company, which is now a top 10 holding.
What we have learned
The primary motivation of IMM is to establish the ability of a company to generate positive social impact, and therefore qualify as an authentic impact investment. However, thorough impact assessment has proven to have some unexpected benefits. For example, in this case:
Adopting a 360° research mindset to form as full a picture as possible of a company’s long-term trajectory is fundamental to Arisaig’s buy-and-hold investment approach. Impact provided a new angle to research, leading us to probe areas such as learning outcomes deeper than we otherwise would have.
Having a view on impact has been a point of differentiation for us as investors. We believe this has led to more meaningful engagement with management, especially while the company was formulating its first Impact Report.
Our approach to impact investing is to seek companies whose positive impact generation grow in-step with revenue growth. For such businesses where impact and financial prospects are so closely aligned, IMM helps us not only to be better impact investors, but better investors overall.
[1] Oliver Wyman research, published in the company’s IPO prospectus from 2018. Note that this is comparing cost of new textbooks with digital learning systems.
[2] From Brazilian Ministry of Education 2020 census. Accessed in April 2022 via: https://download.inep.gov.br/publicacoes/institucionais/estatisticas_e_indicadores/resumo_tecnico_censo_escolar_2020.pdf
[3] See Impact Management Project for more information on the Five Dimensions of Impact.
