Social impact investing means providing capital to organizations with the intention of generating measurable social or environmental outcomes alongside a financial return. It sits between traditional grant funding, which expects no financial return, and conventional investment, which focuses on financial return alone.

Core Features

  • Intention: the investor sets out to achieve a social or environmental outcome.
  • Financial return: expected returns range from below market to market rate, depending on the investor.
  • Measurement: outcomes are tracked and reported, not assumed.

Main Instruments

  • Equity: ownership stakes in social enterprises or impact-focused companies.
  • Debt: loans, often with flexible terms, to organizations with predictable revenue.
  • Quasi-equity and revenue-based financing: repayments linked to the organization’s income.
  • Outcome-based instruments: such as social or development impact bonds, where returns depend on agreed outcomes being achieved.
  • Blended finance: combinations of grants, concessional capital and commercial capital that make riskier deals possible.

What Investors Expect From Investees

Organizations seeking impact investment should be ready for both financial and impact due diligence. Investors typically look for a clear business model and path to sustainability, governance and financial controls, a defined theory of change, and an impact measurement approach aligned with standards they already use, such as IRIS+ metrics, the IMP five dimensions of impact and the IFC Operating Principles for Impact Management.

Is It the Right Capital?

Impact investment suits organizations with a revenue model that can repay or reward investors. Many important programs do not have one and are better funded by grants. Taking repayable capital without a reliable revenue stream can put both the organization and its mission at risk.

Reporting to Investors

Impact investors usually expect regular reports combining financial results with impact indicators. Agreeing on a small set of meaningful indicators at the start, rather than a long list, makes reporting manageable and more useful to both sides.

Related reading: Impact Investing: How Aligning Investments With Values Is Changing Finance.