The Blog

view all

394. From due diligence to performance management

This week I am writing about a Root Capital issue brief that describes how the pioneering social lender is using information on the social and environmental performance of its clients to improve its own financial performance.  In the foreword, Root calls for the creation of a community of practice among financial institutions committed to marrying social and environmental performance metrics with more traditional measurements of financial well-being.  It may not have to look far.


The Social Performance Task Force has already done this across the entire microfinance sector.  The Universal Standards for social performance management (SPM) it promotes are the product of years of work among a community of microfinance institutions (MFIs) that decided to move “beyond the books” and add social performance metrics to their management dashboard.  The goal?  Track the social outcomes of their clients and the social impacts of their businesses with the same rigor that they track their financial performance, and ultimately drive positive social impact through their business models–without ignoring the issue of profitability.

The essence of SPM is “information in action”—the way managers use data collected through those processes to improve their decisions about how and with whom to do business.  And when I say “improve,” I mean expanding social impact—practices, products and services that respond better to the needs of poor people and more effectively drive positive changes in their lives.

In our New Year’s resolution #3, we committed to work with allies in the coffee sector to explore the possibility of adapting SPM practices for use with smallholder coffee enterprises.  Why?   Because many are turning profits year-on-year without effectively addressing the acute social and environmental challenges holding their members back: poverty, hunger, environmental degradation.


The social and environmental due diligence practices that Root Capital describes in its issue brief are related to SPM, but different.  Or perhaps more accurately, they are necessary but not sufficient to drive the social performance improvements that represent the goal of SPM initiatives.  But Root’s approach may represent an important first step toward the application of SPM principles and pratices among smallholder farmer enterprises.

The first of The Universal Standards is to define and monitor social perfomance goals.  Root’s due diligence system does this to some degree already, although the data fields on its social and environmental scorecards are focused more on proxy indicators than outcome and impact measurement.

And Root Capital’s issue brief is about social and environmental information in action.  It describes how its due diligence informs credit decisions, attracts clients, grows the loan portfolio, and leads to the development of new products and services, But it is focused less on how these activities improve its social and environmental performance (what SPM does when it works) than how it uses this information to drive improved financial outcomes at the lender level.

As we make good on our New Year’s resolution to better understand what SPM might offer coffee cooperatives, we will consider what aspects of Root Capital’s social and environmental due diligence might offer an SPM-for-coops prototype.



1 Comment

  • jesse says:


    Many thanks for using your blog as a platform to advance discussion around social and environmental due diligence, performance management, and smallholder livelihoods! We are long-time ‘Coffeelands’ readers and inspired by your focus on improving farmer livelihoods.

    Our goal for the issue brief was first, to engage financial institutions in a dialogue around the role of social and environmental factors in loan underwriting; and second, to generate broader discussion on these issues with other private and public actors in the agricultural industry. We looked through the lens of a financial institution; you wrote through the lens of a farmer organization and, in doing so, raised fresh insights:

    First, you note that social and environmental due diligence for a lender is different than social performance management for a coop. We wholeheartedly agree and use due diligence data as the foundation for a social performance management system that guides our lending. We provide our loan officers with dashboards incorporating projected profitability, social impacts, and environmental impacts of each of their loans, and of their portfolio as a whole, so they can manage towards a “Balanced Portfolio” that incorporates all of these elements.

    Second, you highlight the importance of social performance management at the coop level and observe that it is an under-utilized tool by producer organizations. Through our financial advisory services and impact studies, we are beginning to appreciate, as you already do, the potential for coffee coops and agricultural enterprises more generally to use social performance management to enhance their impact.

    As you noted, our social and environmental scorecards primarily record observable practices that do not measure outcomes or impacts but rather are proxies for them. In 2011, we began to conduct impact studies with selected clients to verify and flesh out the findings emerging from our social and environmental due diligence data.

    Once we began partnering with clients to implement surveys to learn more about producers’ farming practices and livelihoods, it became apparent how enhanced data collection and data management could help our clients improve both their financial performance and their impact – what we now call ‘client-centric’ data collection. We are currently experimenting with a range of approaches using mobile technology to embed data collection into pre-existing processes of agricultural business, such as farmer agronomic training and certification inspection, and to reduce the cost of data collection.

    For instance, our recent impact study of the Nicaraguan coffee cooperative Coomprocom involved evaluating livelihood improvements associated with cooperative membership. The findings not only helped to answer Root Capital’s research questions, but also provided insights for cooperative management into what products and services (in this case, microloans during the lean months and agronomic training to improve productivity) that smallholder members value most.

    Cost and bandwidth constraints dictate that we will only engage with a handful of our 200+ clients in such impact studies. Some of the questions we pose to ourselves, and invite comments from you and others, include: how best to leverage the due diligence information we collect on each and every enterprise in order to support continuous improvement? And, in those cases where we do partner with a client enterprise to collect producer-level data, how to increase the value of that data to the enterprise and to the producers, while continuing to whittle away at the costs of collection? There are no easy answers, but as always, we’re grateful to be part of the community of practice that is emerging around these topics.

Leave a Reply

Your email address will not be published. Required fields are marked *

Note: You can use basic XHTML in your comments. Your email address will never be published.

Subscribe to this comment feed via RSS