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KEY THEME
IMPACT
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Why Impact should be investable?
When you invest in impact, you’re investing in the constructive evolution of the ecosystem and the value chains within it, delivering value to the whole. This theme discusses impact and impact investment, defined as a type of investment aimed at generating a positive and measurable social and/or environmental impact, alongside a financial return (GIIN). This definition emphasises the dual goals of social investment, seen as an intentional financial and non-financial contribution to generating social and environmental solutions. This intentionality is the differentiating factor from other types of investment, such as ESG investment or responsible investment.
This type of investment is objectively geared towards achieving certain outcomes, such as a more long-term and visible change in the ecosystem in line with the organisation’s vision, instead of an output-only orientation, i.e., measuring short-term impact performance indicators. Impact investment works on more abstract components of change, such as improving the quality of life, that can be translated through financial proxies that monetise the value delivered by impact organisations, when there is no immediately perceived market value (Millar and Hall, 2013)*. It comes from a visible intentionality for solving a social environmental problem and points towards a specific additionally. It is only considered impact when it can be measured.
*For further details, see, for example, this working paper
Impact investment thus seeks a financial return on capital that may vary below the market return rate as it also seeks other types of social and/or environmental return (Barber et al.,2021). It’s worth noting that, even if the financial return is not as remarkable in this ecosystem, impact investment continues to grow in popularity. According to GIIN’s ‘2020 Annual Impact Investor Survey’, impact investment market grew from USD 114 billion in 2017 to USD715 billion in 2020. With more impact investment in change drivers,we’ll be able to see the economy moving towards more relevant and positive contributions for everyone.
But there is no impact without additionally. This is a crucial concept in impact investing that refers to the unique contribution an investment makes beyond what would have occurred without it. It addresses the question of whether the target social or environmental outcomes would have happened in the absence of the investment. Impact additionality can be assessed at two levels: investor-level additionality, which measures the investor's integral role in the development or performance of the investment, and enterprise-level additionality, which evaluates how the investment enables the investee to deliver greater or higher quality outcomes.
To demonstrate impact additionality, investors often need to present counterfactual evidence, comparing the measured impact to what would have happened without the investment. This can involve techniques such as comparing the measured footprint to global averages, using avoided emissions methods, or calculating scores based on multiple weighted factors. Additionality is essential for ensuring that impact investments genuinely create new positive outcomes rather than simply supporting existing activities. It helps in the efficient allocation of resources by directing capital to areas where it will make the most difference and provides a framework for assessing the real impact of investments.
Thus, in a global context where social tensions are escalating for large population groups, while environmental issues are worsening and threatening even survival on this planet, we know that the current economic system has not been able to respond to this pressure. Will we then, as a last resource, turn to social investment to inject resources into new possibilities, seeking to catalyse all the systemic change humanity needs? Despite its emerging role, social investment has shown great potential to collectively tackling social and environmental challenges with courage and determination, while creating new business models capable of generating new market references. Its main characteristics include focus on measuring and managing impact and potential to leverage enterprises or organisations that deal with social and environmental challenges, preferably producing systemic impact. Either way, there is usually a tension between financial and social/environmental goals. The investment decision is usually mobilised by a sincere drive to contribute to change and an alignment with the intentions of organisations that act for the agreed change. The main purposes of social investment are therefore to channel resources with a return and support value chains that generate wealth for the economic areas in which they operate. It also plays a crucial role of financially and non-financially leveraging the changes in which this ecosystem invests daily, and in countless ways, to do more and better for everyone.
MUST READ
Envision a world that moves in only one direction: forward. A world where inequality is shrinking. Where natural resources are regenerated, and people can unlock their full potential and benefit from shared prosperity. A world focused not only on minimizing harm, but on doing measurable good. Join us for this talk by Sir Ronald Cohen about his new book, Impact: Reshaping Capitalism to Drive Real Change. Ronald Cohen (@sirronniecohen) is a philanthropist, venture capitalist, private equity investor, and social innovator, who is driving forward the global Impact Revolution. For nearly two decades, his initiatives have catalyzed global efforts to drive private capital to serve social and environmental good. He serves as Chairman of the Global Steering Group for Impact Investment and The Portland Trust.
Modules
A Theory of Change provides a clear roadmap for how ventures create meaningful, measurable impact, ensuring alignment between intentions, actions, and outcomes. Utilizing IRIS+, IMP, and the SDGs as guiding frameworks enhances accountability and comparability, enabling ventures to track progress and communicate impact effectively to stakeholders.
Upholding Legal Requirements & Governance means embedding frameworks that protect not only investors and communities but also the natural world, fostering transparency, accountability, and ethical stewardship. Whether you are a Foundation, a company or an association, your legal format impacts on the type of impact you bring and on how you can attract Blended Financing and leverage diverse Investment Instruments that align capital with impactful outcomes.
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