Long Read

Impact Decoded: How the core principles of investing for impact can help us fund smart through uncertain times

With funding for innovative solutions in greater demand than ever, investors for impact can play a vital role. But what sets them apart from other capital providers – and how can they make best use of their 'DNA' as impact-first investors? Alessia Gianoncelli, head of EVPA’s Knowledge Centre, introduces our new series, in which we'll decode the core characteristics of investors for impact and explore how they can guide others to back high-impact solutions in the smartest possible way.

Alessia Gianoncelli |
Impact Decoded: How the core principles of investing for impact can help us fund smart through uncertain times
Peter Macdiarmid, Getty Images for Somerset House

The Covid-19 pandemic presents unrivalled challenges. Healthcare systems urgently need to boost their capacity to treat patients, and societies need to strengthen efforts to safeguard the most vulnerable communities. Economic systems should find ways to protect workers, and avoid the collapse of financial markets. And almost overnight, huge swaths of the population have found themselves confined at home, a drastic change that none of us expected to come quite so soon. Today, Covid-19 has reminded us in no uncertain terms that we are all responsible for and connected to each other.

The problem is here and now. We urgently need solutions that are accessible to everyone. But to bring these ideas to fruition, they need the right type of funding.

The European Commission shares this thinking, which is why last month they launched a call to fund start-ups and SMEs with innovative solutions to tackle the Covid-19 outbreak.

At EVPA, we know that a huge source of both financial and non-financial support in this kind of situation is the community of investors for impact.

Such investors – as stated in the Charter of Investors for Impact, developed by EVPA and now signed by more than 300 individuals – are problem-focused and solutions-oriented, innovating ways to tackle societal challenges. Investors for impact are dedicated to mitigating or even fully eliminating problems, looking for solutions that address the root causes. They are eager to help transform the way in which society’s toughest problems are tackled.

While many investors will claim their work has a positive impact, we believe the narrower community of investors for impact set themselves apart from the crowd.

As Luciano Balbo, founder and president of the first Italian impact investing fund Oltre Venture, and one of the founders of EVPA, rightly points out: investing that is adding nothing new cannot be considered impact investing. As EVPA, we too prefer to shift the discussion from good intentions to additionality. Investors for impact put the social business models of the organisations they support at the centre of their strategies, and take risks that others are not prepared to take. This makes these practitioners perfectly placed to focus on new and innovative solutions to the current crisis (and future ones).

We urgently need solutions that are accessible to everyone. But to bring these ideas to fruition, they need the right type of funding

With social challenges multiplying – yet too few solutions operating at a large scale, and systemic change often far out of reach – the impact ecosystem craves highly-engaged investors.

We’ll be inviting just a few such investors from among our community to dig into the principles of the Charter and share how they are applying them in their own investment strategies, as part of Impact Decoded, a brand new series in partnership with Pioneers Post.

The series follows last year’s Impact Papers and complements our recent collection of videos, in which experienced practitioners and thought leaders from the impact ecosystem reflected on some of the Charter’s principles.

Anne Holm Rannaleet, executive director and trustee at IKARE Ltd, highlighted the importance of being highly-engaged for the long-term and striving for lasting impact (Principle 3). A pioneer in investing for impact, Anne highlighted the need to be patient, supporting investees for ten years – or even longer – and engaging with diverse types of stakeholders throughout the investment process.

Harvey Koh, managing director of the leading mission-driven consulting firm FSG, explained how investors for impact are used to structuring things differently. These investors start by listening to the investees, as they themselves know best what support they need. Tailoring financial support to these needs (Principle 7) is at the core of investing for impact.

Hedda Pahlson-Moller, founder and CEO of TIIME, focused on the benefits that can come with stepping outside our immediate circle and engaging with potential partners. Investors for impact feel the obligation to share their expertise and knowledge and help mobilise more resources for social impact by encouraging others to get involved (Principle 9).

This year, EVPA will continue to showcase impact and investing for impact.

The Impact Decoded series will demonstrate how putting the final beneficiaries at the centre (Principle 2) and taking risks that most others are not prepared to take (Principle 4) come together in the methods employed by investors for impact. Next, we will explore how the venture philanthropy approach works in practice, looking at how measuring and managing impact (Principle 5) and providing extensive non-financial support (Principle 6) are key elements in investment strategies. Finally, we will discover how investors for impact proactively enhance collaboration with others (Principle 8), while upholding high ethical standards (Principle 10).

We know that thousands of innovative solutions already exist. But it is through engaged cooperation and transparency that we will enable solutions to be shared and scaled effectively to tackle the most pressing social and environmental issues. We look forward to working with the global impact investment community to move closer towards this goal.

Article originally published on Pioneers Post (link)