The “Metrics Trap” in impact investing

Recently, Climate Farmers decided to shut down their carbon-market-focused initiative in regenerative agriculture. Their founders announced this on Linkedin. (Link)

Their reason? Carbon markets demand simplicity and regenerative agriculture is anything but simple. Carbon markets expects linear progress and regenerative agriculture non-linear.

This sounds very similar to what many from the original set of impact investors have long discussed- “measurement reductionism” – to reduce impact created by a venture to a simple metric. The obsession with easily quantifiable outcomes can drive capital to what is measurable, not what’s meaningful. Think “number of women borrowers” instead of true financial empowerment.

Deep impact, in regenerative agriculture or social equity or climate resilience, lives in complexity. It is messy, non-linear and often expensive to measure. Moreover, the emphasis on third party verification, over the past few years, have led to further increase in costs of measurement.

Simple metrics are necessary to attract mainstream market based commercial capital because that form of capital thrives on scale and scale doesn’t allow for complexity. So, for business models that have demonstrated scale and identified simple metrics, it is understandable for investors in such opportunities, to be rooting for simplicity.

Investors who claim to drive positive impact must, however, lean into the complexity, not run from it. And those managing such capital must ask: are we funding what matters most, or what’s easiest to measure?