How Data-driven Strategies Can Improve Impact Investing Outcomes – Knowledge@Wharton

Data science is making inroads into the world of impact investing, helping program designers and beneficiaries achieve closer alignment between their goals and strategies. While some are building on models from the business world to correlate different pieces of ecosystems to understand how impact flows, others are attempting to marshal next-generation digital technologies such as blockchain to improve outcomes in areas such as disaster response and land titling.

The Rockefeller Foundation has been designing ways to harness data effectively in order to improve the effectiveness of impact investing. “Data really helps you understand the nature of the problem, and thinking about data ahead of time helps you structure your experiments and your interventions,” said Zia Khan, vice president of initiatives and strategy at the foundation. “Measuring data helps you prove what works, what doesn’t work, and then you can monitor and scale things up.”

The data movement is infectious. Khan said he sees “increasing appetite to learn more from some of the countries that have done some breakthrough work,” such as Estonia and India. In particular, he cited India’s biometrics-based identification system called Aadhaar, which has enabled millions of previously undocumented residents to open bank accounts and secure government benefits, education and jobs, among other gains.

The Power of Correlation

Locus Analytics, an economic research and data analytics firm, has developed a new model to locate, map and study the components of an economy, which allows researchers, policymakers, investors, entrepreneurs and anyone interested in economic data to sort, splice and analyze the information in new and innovative ways, according to founder and CEO Rory Riggs.

The company created the Locus Model, which it said enables “a new method of interactive data analytics for business and economic data.” The model is apt for impact investing because it brings more precision in directing resources and maximizes desired outcomes. “If I could give you transparency to all these marketplaces, you now, from a financial point of view, can think through, ‘Where is the most impact for your dollars?’” Riggs said. “It is a way to benchmark and grade your investments and make them much more targeted.”

Riggs explained how Locus harnesses the power of interrelation in data. Much like how geographic mapping uses a so-called “coordinate system,” the company uses location-based services to create “a robust classification system to understand better who you are, who’s around you, and then how to find other people who are like you,” he said. “We’ve taken a production system from inputs to outputs and allows you to figure out where you are in that process.”

“Measuring data helps you prove what works, what doesn’t work, and then you can monitor and scale things up.” –Zia Khan

For example, the model creates correlations between various functions, such as design, production, sales and transportation in a business setting, to create an “activity wheel.” That framework “captures every activity in the economy, and these activities are the same in Kigali as they are in New York,” he added.

Riggs and Khan shared their insights on innovating with data in an episode titled “Driving Data for Impact” as part of a Knowledge@Wharton podcast series From Back Street to Wall Street, where entrepreneurs, investors and policymakers from around the world focus on maximizing impact investing outcomes. (Listen to this episode using the player at the top of this page.)

Widening Interest

Riggs said one user of such data could be an entity like the Farmers Business Network, which crowdsources farmers, connects them with each other and shares real-time information on crop patterns, new agricultural products and others. “This is going to happen industry by industry” by providing participants greater visibility into their individual roles and their impact across their value chains, he said. “I’m hoping that every impact worker will have access to understanding what their business is and how their business is performed around the world.”

The Locus Model helps organizations locate their place in a value chain and then create their own networks. “It’s a neat way of saying, ‘Once I put my own code on myself, then I can find other people that do that, and we can start building neat networks that allow people to communicate,’” Riggs said. That model could be extended to country-level planning, too. In what he called a “clinical model” for economic development, policymakers could understand how their economy has developed and compare that with other countries.

“Our codes facilitate your creating a clinical model, because it allows you to build a standardized representation of your community, and be able to compare it to a standardized representation of Detroit or New York or Stockton,” Riggs said. As it happens, Stockton is a transportation hub for farm areas around California. “If you’re building a merchant hub in an impact country, wouldn’t you like to know about the businesses that have formed and developed in an American distribution center? And start building your models around that?”

Locus has also identified stock indices as users of its tool, where it could correlate companies by their businesses. “The S&P, MSCI, Wilshire and Russell are now running indexes using my technology to group companies that correlate because of function,” Riggs said, adding that investors following those indices could design and diversify their portfolios based on this data.

Insurance companies also are studying the model to understand correlations between, say, disability problems and specific jobs, Riggs added. “In the financial world, we’re getting good traction by people realizing they now have a new tool to identify and then manage risk because they can see it more clearly.” He is also seeing interest in the model from companies that want to understand their peers better or map their supply chains.

Working with Governments

Riggs has been taking his model to governments. Locus recently reached an agreement with the government of Rwanda to start developing survey tools for that country that will allow it to start mapping its community in “a functional mapping context,” he said. “What we’ve told Rwanda, and we’d tell others, is that once I have your system mapped in our system, I will handle the [networks across the] developing world,” said Riggs. “The promise will be in the impact world. If you let me come in and map your community, I will allow you, then, to compare your community to all these developing world countries.” Locus has already mapped China, England, France, the U.S. and Mexico.

“It is a way to benchmark and grade your investments and make them much more targeted.” –Rory Riggs

In order to ensure that the data in the networks stays current, Riggs plans to crowdsource that effort by creating online homepages for users to update their information. “Just like people will update their Facebook page or a Wikipedia page, I’m hoping that people will take ownership of the page they care about so that that page stays current.” His firm is also building machine-learning tools that can read websites and update business summaries. Locus already has information on more than 50 million companies in its database, which together account for about 150 million jobs.

Riggs described the Locus Model as “the ultimate free trade tool.” It allows users to get “perfect information at any given point in time, so the speed of change in business will become much faster,” he explained. Impact investors would be able to map information on new business startups, and businesses could use it to manage supply chains, plus find avenues to sell their products and services, he added.

Research work in correlation led Riggs to create the Locus Model. A math major in college, he had spent most of his earlier career working with scientists building biotechnology platforms to conduct fundamental research. That work involved using data to understand a disease by matching its attributes with those of other diseases. He wondered whether he could build similar platforms for business with a network of all economic activity based on fundamental attributes of business functions. With the Locus Model, he showed that it was indeed possible.

Data in its DNA

As for the Rockefeller foundation, using data to shape its strategies dates back to its origins more than a century ago, Khan said. “We coined the term scientific philanthropy, which was this idea of how do we get analytical and data driven around understanding problems, measuring the effect of interventions, and then scaling up the ones that really worked,” he added. “It has been part of our DNA for a while.”

Khan credited Rockefeller Foundation president Rajiv Shah with “putting data and technology kind of at the center of the vision for the foundation.” Shah joined the foundation as president in January 2017 and previously worked as the administrator of the U.S. Agency for International Development.

“Data has always been really important,” said Khan. “What is different today is how available data is.” In the past, philanthropy involved investments in producing data, but that is no longer required because plenty of data is available these days. “The arc shouldn’t necessarily be in producing new data, but in taking the biggest advantage of all of the data that is there.”

Three Levels of Opportunity

Khan said his foundation sees three levels of opportunity in digital data. At one level, it is exploring opportunities in “the digital state,” which encompasses “foundational technologies” like blockchain, geographic mapping services and digital ID, he said. For example, in the event of a hurricane or other humanitarian crisis, blockchain can help in building trust in the distribution of money and supplies, Khan said. Another example of blockchain usage is in providing verification processes for land rights, he added. “So much of the world has insecure land rights or informal land rights, and you could use blockchain technologies to create assets that are verifiable and stay with people over time.”

“Data has always been really important. What is different today is how available data is.” –Zia Khan

The second is to use the new technologies across all of its initiatives in health, food or American jobs. For example, one of the foundation’s grant recipients is working with partners to gather data on food waste in cities across the U.S. Thirdly, the foundation is looking internally to position itself in the evolving technological landscape. “We have to change our own culture, our own way of looking at things,” Khan said. “How do we think about tapping into all of the data that is available to inform our decisions? How do we get more data driven around shaping our strategies, and how do we monitor our work on a monthly basis versus waiting for a six-month evaluation to come back? There are many behaviors that we ourselves had to change as well. So we’re hitting at it from multiple levels.”

Addressing Concerns Over Data

Technologies like digital ID systems have many benefits, but they needs streamlining to ensure user privacy, which has been a concern with Aadhaar, he noted. Khan also pointed to the need to create “ethical frameworks” in order to provide the beneficiaries of these programs a voice in how they are designed.

The Rockefeller Foundation has provided funding for The Beeck Center for Social Impact & Innovation at Georgetown University to launch its Blockchain for Social Good project. The project aims to develop a framework for privacy and ethics in the implementation of blockchain in support of vulnerable and marginalized populations. Efforts are also underway to create standards of interoperability between those technologies, he said.

The technologies used ought to be designed in ways that counts “the voice of people who might otherwise be marginalized, or whose interests might otherwise not be represented,” said Khan. “Otherwise, it will be driven by the interests of big technology companies, and that is what we have seen in the past.” The next step is to assess “the degrees of freedom” program participants have with respect to their data. He pointed to the General Data Protection Regulation in Europe as one such effort “to put the control back into the user.”

Khan said he sees hope on two fronts with those efforts. “[First,] there are a lot of good resources that are getting put into play,” he noted. “Second, because we are so much more of a connected world, and we have greater awareness of what is happening, we can tap into the ingenuity of a lot more people. For example, it is exciting to see other countries looking to a country like India to learn about digital ID and ways to implement it. I don’t think 50 or 60 years ago, people would have been looking to the global set-up for solutions. Now we have more solutions emerging from more people, and if we can be disciplined about focusing on the best ones and scaling them up, then we have a larger number of solutions coming to bear.”

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