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How Impact Investors Maximize Positive Net Impact

Most impact investing private wealth holders (High Net Wealth individuals, Family Offices, and Charitable Foundations) wish to maximize their positive net impact, meaning the contribution each investment makes to improved social and environmental conditions, after netting out the unintended negative impacts.

Given the state of the field of Impact Measurement and Management (“IMM”), this is a tall order. Comprehensive practices for comparative IMM across investments are still nascent.

Rowers in boatYet capital is limited and the problems facing the world are seemingly endless, so impact investors come to see optimizing for impact as critical. As they become more practiced, they hone their ability to assess the combined financial and impact returns of an investment, both estimating these prospectively (in due diligence) and measuring and managing them post-investment.

Investors are not seeking to maximize positive net impact at all costs, but rather, are looking for a balance between financial and impact returns. If the impact is extraordinary, many will provide catalytic (sub-commercial) capital and relax financial return expectations. If not, or in sectors awash in commercial capital, financial returns will have more prominence.

But across a portfolio, all things being equal, the impact investor will prefer greater impact. To execute on that preference requires a consistent methodology and some degree of discipline. Those starting with a vague intuition about whether an investment “sounds impactful” typically sharpen their focus over time, moving towards greater rigor in assessing impact.

They come to realize they cannot optimize for impact if they cannot assess the impact they are having. It is a journey and the question they seek to answer is deceptively simple to ask: Will an investment in Enterprise A or B have more impact?

The answer (along with financial performance) will inform decisions of whether to invest more, sell, or hold this investment when the opportunity presents.

To inform investment decision-making, investors need practical ways to assess both prospective and actual impact. The rapid evolution of the impact management field offers impact investors plenty of frameworks, impact metric sets, and best practices to do so. This evolution is fueled by market builders hailing from diverse sectors — all converging on integrating impact performance expectations with financial performance expectations.

Bringing a disciplined rigor, focusing on outcomes (not just outputs), employing counterfactuals and acceptable thresholds of performance, participatory methods for engaging community and other stakeholders, and right-sized approaches are some of these best practices.

If the impact is extraordinary, many will provide catalytic (subcommercial) capital and relax financial return expectations. If not, financial returns will have more prominence.

A recent illustration of the collective effort to build practical, yet disciplined, approaches to impact management occurred in the 2021 Peer Learning Partnership funded by the OECD and European Union, an effort that offered a wonderful venue for exploring community and broader stakeholder engagement. It collected a body of case studies and analysis of how to do Stakeholder Engagement well, which is publicly accessible here. The central practice is to continually ask “how is this intervention perceived by the people it aims to help?” by actually asking those people and incorporating what they say in operational behavior.

“Rightsizing” IMM to the context is an area of continuing experimentation, but it is already clear that IMM both can and should be adjusted in size and scope relative to the context.

Whatever the size of the effort, and however much listening is accomplished, and decision-making made more inclusive, IMM still requires effort. That is effort investors need a strong reason to undertake. They are not interested in IMM for its own sake, or even primarily to build the field’s evidence base, but for another, more personal reason: to better inform their investment decision-making.

Most high-impact opportunities are private investments. A direct equity investment has an unlimited time horizon for exit. An investment in a private equity fund is typically a commitment for ten to twelve or more years, typically with no liquidity until then. Secondary markets for private impact investments are limited, so unlike with publicly traded securities, the investor cannot quickly sell the investment if they discover the impact (or financial performance) is below expectations.

Investors are not interested in IMM for its own sake, or even primarily to build the field’s evidence base, but for another, more personal reason: to better inform their investment decision-making.

So why do investors bother with IMM?

lighthouseBecause investors are continually making capital allocation decisions. They don’t get to see all the promising potential investments in a sector at one time to facilitate comparison. Rather, they evaluate them over time, as those opportunities come to visibility in their investment pipeline. Having rigor in IMM enables the investor to compare the potential impact of an investment being considered today to a similar one evaluated three years ago.

Both growing and struggling enterprises have an ongoing need for more capital. Their first call in such situations is typically their existing investors. An understanding of the impact actually achieved will sit alongside an analysis of financial performance in guiding the decision about whether to put more capital into an existing investment or look elsewhere.

Though not as early or often as we’d like, impact investments do return capital to their investors. Some investors are continually adding the pool of capital devoted to impact. In both cases, there is new money available to be deployed (or redeployed). Where it should be deployed can be helpfully guided by consistent and comparable impact metrics and analysis.

We at Toniic support our members in the use of the Five Dimensions of Impact established by the Impact Management Platform:

  • What” tells us what outcome the enterprise is contributing to, whether it is positive or negative, and how important the outcome is to stakeholders
  • Who” tells us which stakeholders are experiencing the outcome and how underserved they are in relation to the outcome
  • How Much” tells us how many stakeholders experienced the outcome, what degree of change they experienced, and how long they experienced the outcome for
  • Contribution” tells us whether an enterprise’s and/or investor’s efforts resulted in outcomes that were likely better than what would have occurred otherwise
  • Risk” tells us the likelihood that impact will be different than expected

By analyzing both prospective and retrospective impact through this lens, investors can begin to assign both scores and relative weights to each of the dimensions. Doing this facilitates comparability, at least between similar investments.

Many practical challenges remain. This analysis requires data that has often not been collected. It is designed to be applied one potential impact at a time as most enterprises (let alone funds) are having multiple impacts, and the aggregation of this analysis for multiple impacts in an enterprise or fund is still more art than science.

If one’s motive is to maximize the positive effect on the world of our invested capital, and we are willing to be intellectually honest, we must admit that we cannot optimize what we don’t understand.

But the biggest challenge of all is “why do it?” Traditional investors don’t bother with this analysis at all, and undertaking it imposes a voluntary “tax on the virtuous.” Why should they pay this tax?

It all comes back to intention. If one’s motive is to maximize the positive effect on the world of our invested capital, and we are willing to be intellectually honest, we must admit that we cannot optimize what we don’t understand.

The continued development of rightsized, practical IMM approaches holds great promise in shaping the deployment of capital to the highest impact opportunities for those committed to using it for the healing of the world.

This essay is part of the “Why IM” thought leadership series — a set of perspectives and calls to action to mainstream the adoption of Impact Management. The series is an initiative of Impacting Together, a cross-sector network of practitioners aiming to break down silos across sectors and practice areas to share tools, solutions, and frameworks that can advance deep, durable impact. Previous articles in the series:


Adam Bendell is the CEO of Toniic. Toniic creates community, provides educational resources, and investment opportunities for its members. Adam joined Toniic from his role as Chief Innovation Officer for FTI Consulting, Inc., a NYSE-listed global consulting firm. Prior to FTI, he was CEO and co-founder of Strategic Discovery, an ... Read more

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