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Impact Strategies

An impact strategy represents how a capital provider codifies its activities through
three axes:

• Social impact aimed


• Financial return sought
• Readiness to engage in social or financial risk.

Related to these variables we identify two impact strategies: investing for impact and
investing with impact, that constitute part of the impact strategies continuum.

Source: Impact Strategies: How Investors Drive Social Impact, EVPA

Here, we are presenting the main features of both types of investors. Acknowledging
the difference is important to make both spaces more transparent regarding their
intentions, align their shareholders better, manage the expectations of the invested
entities and create an adequate environment to collaborate with other kinds of capital
providers.

IMPACT STRATEGIES OVERVIEW


OVERVIEW IMPACT STRATEGIES
INVESTING FOR IMPACT INVESTING WITH IMPACT
SOCIAL IMPACT – OBJECTIVES, MEASURES AND LEVELS OF EVIDENCE

Investors for impact:


Investors with impact:
• consider primarily the achievement of a
• have impact as a secondary objective,
positive social impact, with a range of
subject to the achievement of a financial
intentions for or without a financial
return;
return;
• use social impact to mitigate the risks
associated with the achievement of a
financial return;
• have the social challenge, social • screen investments primarily based on
solution and beneficiaries as the the potential financial return they can
starting point (“solution focus”); generate – and then on the potential
• articulate a Theory of Change; impact;
• evaluate their own impact on the social • select investments mostly using
purpose organisation (SPO) supported; standardised criteria (e.g. ESG, PRI, etc.)
• give particular attention to the potential or a negative screening approach,
of the SPO to generate the desired requiring a high detail of evidence that
impact, resulting in the centrality of the a specific model has achieved impact in
SPO’s impact model in the deal the past;
screening and due diligence phases; • measure investees’ social impact
• adopt a positive screening approach performance based on standardised
when selecting investees; indicators (e.g. IRIS, GRI, etc.)
• adopt a more rigorous and
management-oriented, bottom-up
approach to impact measurement,
including the use of customised
indicators – often co-designed with
SPOs, while trying not to burden
investees with excessively demanding
requests for evidence during the
investment itself;
• focus on additionality instead of just
intentionality;
• put particular emphasis on preserving

the impact of the SPO when they exit.

FINANCIAL RETURNS

Investors for impact: Investors with impact:


• are very dispersed in terms of the • generally expect positive returns in line
financial return they target (from -100% with those of traditional investors;
to 0% and +); • target primarily financial returns – with
• consider potential financial returns as a the achievement of a social impact as a
means to an end (i.e. the achievement of secondary goal;
a social impact); • are not willing to give up part of their
• are willing to give up part of their financial return for the achievement of
financial return for the achievement of a a higher social impact.
higher social impact.

RISK COMPONENT
Investors for impact: Investors with impact:
• are willing to take higher operational • start looking at risk from the financial
risks if it means achieving a major social perspective and focus on de-risking
impact; the financial component;
• perform an explicit social and financial • do not always develop ways to assess
risk assessment (e.g. also consider the and mitigate risks associated with
risks associated with not achieving the social impact;
desired social impact); • look at the risk of generating a negative
• take also into account the potential (and social impact only as a screening
collateral) negative impact. criterion (i.e. in the “do no harm” sense).
• develop ways to mitigate the risks;
• use impact evidence to reduce the risk
associated with impact.

Source: Impact Strategies: How Investors Drive Social Impact, EVPA

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