Roland Fryer teaches economics at Harvard. His students used to want a path to Wall Street. Now they want money that earns a return and helps people too. Nearly 4,000 organizations ran $1.57 trillion in impact investments in 2024, by the Global Impact Investing Network's count. In a Journal op-ed on Thursday, Oct. 29, Fryer points to a gap. Investors still can't reliably tell which fund does the most good per dollar.
Fryer also co-founded an impact firm of his own, Equal Opportunity Ventures, so he has skin in this. A return number lets you rank funds, he says. Impact has no shared number like that. One company reports students taught. Another reports patients treated. A third reports carbon avoided. You can't line those up side by side, so money can't reliably find the ones that work best.
Two steps, and a trap
His fix has two steps. First, ask what would have happened anyway. Take a job-training company whose graduates make $50,000 a year. The question is what they'd have made without it. At $48,000, the program is worth $2,000 a year to each one. At $30,000, it's worth ten times that. Second, turn the gain into dollars and subtract what people paid to get it, like tuition and lost wages. The fund then claims only its ownership share and divides by what it put in. He calls the answer the social money multiplier. TPG's Rise Fund and the Bridgespan Group built a similar measure.
Then he shows the trap. A fund puts $500,000 into a health business and ends up owning 10%. The business reaches 100,000 people and cuts each one's risk of dying by 1 in 10,000. That's about 10 lives. The Department of Health and Human Services uses about $13.5 million as the value of one life saved. So the benefit comes to $135 million. The fund's 10% share is $13.5 million, or $27 of good per dollar. Use half that value for a life and the figure drops to $13.50. Nothing about the company's work changed. Only the fund's assumption did. “Measuring impact deserves the same ambition as making it,” he writes.
Our read
This is Investments/Risk · IN04, with a Behavioral angle. Our model books hold no impact funds. But many of our faith-based readers already invest by their values. A Shariah screen is a values screen with written rules, and that tie-in is ours, not Fryer's. SPUS, a Shariah-screened S&P 500 fund, is held at weight in 3 faith books. So is SPSK, a fund of sukuk, the Islamic version of bonds. Nothing added. Those screens spell out what they leave out and why. Fryer's complaint is that impact funds have no shared way to count the good they do. A claim of good done deserves the same hard look as a claim of return earned. Ask what would've happened anyway. Ask whose assumption sits under the big number.
Maybe you hold a fund that sells itself on values. It could be an impact fund, a green fund or a faith-screened one. Here's the check for this week. Pull its fact sheet and find the page that reports its impact or its screen. If it's a screen, read the rules and see if they still match yours. If it's an impact number, look for the assumption underneath, the way $27 became $13.50 with one change. Then note the fee printed next to it. A good screen is a fence you can see, and a good impact number should be one too. We'd rather go over that with you now than after the next glossy report lands.