WHAT IS INVESTING FOR IMPACT?

An increasing number of mainstream investors, attracted by the idea of doing good while achieving positive financial returns, are entering the impact investing market. On the other hand, traditional grant-making foundations are increasingly giving grants in a long-term and sustainable way and starting to look into how they can put their endowments at use. Between these two types of capital providers, a group of venture philanthropy and social investment funds are mixing the two approaches, adopting for the past fifteen years the so-called venture philanthropy approach, combining financial support with capacity-building and a focus on impact measurement and management.

Investors for impact support and catalyze innovative solutions to social and environmental problems, taking on risks that no other actor is willing to take.

OVERVIEW IMPACT STRATEGIES

SOCIAL IMPACT - OBJECTIVES, MEASURES AND LEVELS OF EVIDENCE

INVESTING FOR IMPACT

INVESTING WITH IMPACT

  • Consider primarilly the achievement of a positive social impact, with a range of intentions for or without a financial return;

  • have the social challenge, social solution and beneficiaries as the starting point ("solution focus");

  • articulate a Theory of Change;

  • evaluate their own impact on the social purpose organisation (SPO) supported;

  • give particular attention to the potential of the SPO to generate the desired impact, resulting in the centrality of the SPO´s Impact model in the deal screening and due diligence phases;

  • adopt a positive screening approach when selecting investees;

  • adopt a more rigorous and management-oriented, bottom-up approach to impact measurement, including the use of customised indicators - often co-designed with SPO's, while trying not to burden investees with excessively demanding requests for evidence during the investiment itself;

  • focus on addionality instead of just intentionality;

  • put particular emphasis on preserving the impact of the SPO when they exit.

  • have impact as a secondary objetive, subject to the achievement of a financial return;

  • use social impact to mitgate the risks associated with the achievement of a financial return;

  • screen investments primarilly based on the potential financial return they can generate - and then on the potential impact;

  • select investments mostly using standardised criteria (e.g. ESG, PRI, etc) or a negative screening approach, requiring a high detail of evidence that a specific model has achieved impact in the past;

  • measure investees' social impact perfomance based on standardised indicators (e.g. IRIS, GRI, etc.)

For additional information please refer to
Impact Strategies - How Investors Drive Social Impact

 

THREE KEY ELEMENTS

The investing for impact methodology implements the capital principles of risk (venture capital), including long-term investment and practical help for certain elements of the social economy. The main elements of investing for impact are:

  • Tailored Financing

    Choosing the most suitable financial instrument(s) to support an SPO. These instruments include grant, debt/loan, equity, and hybrid financial instruments. The choice of the financial instrument(s) depends on a number of factors, such as the investor for impact’s willingness to take risk, or the SPO’s business model and stage of development.

  • Non-financial Support (NFS)
     

    Providing support services to a social purpose organisation in order to maximise its social impact, increase its financial sustainability or strengthen its organisational resilience.

  • Impact Measurement & Management (IMM)
     

    Measuring and monitoring the change created by an organisation’s activities and using this information/data to refine activities in order to increase positive outcomes and reduce potential negative ones.

For more information, we suggest reading the report:
A Practical Guide to Venture Philanthropy and Social Impact Investment
published by EVPA.