What Is ‘Investing for Impact’?
As the impact investing ecosystem grows, so grows an interest in a loaded term: investing for impact.
‘Investing for impact’ is an action, a strategy, a principle and Impact Europe’s tagline. Understanding the nuances of it can help build a business case to attract appropriate funding, draw likeminded partners and lead to better measurement and management of impact.
Most of Impact Europe’s members are involved in investing for impact – even if they might not refer to it as such. Since our network includes actors across the continuum of impact capital, who don’t always self-identify as ‘investors’, some disambiguation can help.
Short Definition
Investing for impact is deploying capital and resources that accept risk to solve social and environmental challenges.
‘Investing’ is capital, whether it is about grants, loans, equity or hybrid financial instruments, but it also means time and technical expertise.
‘For’ denotes intention.
‘Impact’ means positive social and environmental change.
Three Defining Features
1. Intentionality: having a clear ex ante intention to contribute to solving social and/or environmental problems.
2. Impact measurement and management: using the impact data collected to understand what works and what to improve, ultimately taking better informed decisions.
3. Additionality: both investee additionality, thus financing companies or projects whose primary mission is to provide solutions to address social or environmental challenges and/or benefit otherwise neglected/underserved target groups; and investor additionality, thus making a positive contribution that would not have happened without the deployment of capital itself.
Who & How
Those who ‘invest for impact’ unite around the additional impact of capital – the impact that wouldn’t have happened without their intervention. They do this in diverse ways, not all of which are a perfect fit for the term ‘investing for impact.’ Here’s how most of Impact Europe’s members fit:
Who: Impact funds and asset managers, including family offices
How: By intentionally deploying capital for measurable and manageable impact. Their investments go beyond ‘impact investing’ when their impact wouldn’t have happened otherwise (additionality).
Who: Corporations, corporate impact actors and banks
How: Same way! The only difference is, corporations and banks may deploy capital through their foundations, in which case they behave more like...
Who: Foundations
How: Foundations rarely label themselves as ‘investors for impact’ – and yet their practices often fit the definition. When offered alongside non-financial support, grants can surely be considered an ‘investment’. Foundations deploying capital – whether through catalytic grants or through impact investing – if doing so by being intentional, with a focus on impact measurement and management and bringing in additionality, they are definitely investing for impact.
Who: INGOs
How: By providing grants, running programs to catalyse move investments and offering technical assistance. Like foundations, INGOs don’t often claim to be ‘investors for impact’, but many of their activities fit the description, as shown in our report.
Who: Public institutions and policymakers
How: Public financial institutions like the EIF and EIB actively de-risk and co-finance initiatives that benefit people and planet – they're acting as catalytic players in scaling investments for impact. While most other public institutions may not provide direct funding, they play a crucial role in shaping the legal and policy frameworks that enable impact. When their mission aligns with the public good, they can be considered ‘for impact’—investing their time and influence in creating conditions for change. In many cases, our network is already engaging these institutions to support and strengthen their role in the impact ecosystem.
FAQs
Is this about gatekeeping?
No – we certainly hope not. ‘Investing for impact’ as a principle intends to recognise a level of additionality and risk tolerance typically greater than ‘impact investing’, but anyone who considers themself an impact-minded capital provider along the full continuum of capital (e.g. foundations, impact funds, banks and financial institutions, corporate impact actors, public funders) is welcome in our network. This includes impact support organisations, service providers and social innovators of all sorts.
What is the difference between ‘impact investing’ and ‘investing for impact’?
‘Impact’ is the goal of both; ‘investing for impact’ is willing to take greater risks to get there and also includes the provision of grants, not just repayable finance. Investing for impact includes additionality as part of its strategy, signaling a great level of investor financial and non-financial contribution.
What is the link between ‘investing for impact’ and ‘venture philanthropy’?
Both strategies refer to the deployment of capital through grants, loans, equity or hybrid financial instruments intended to generate a positive social and environmental impact. Both strategies have a strong focus on impact measurement and management, coupling the provision of flexible and patient capital with non-financial support.
Impact Europe decided to change our name -- we were formerly known as EVPA, the European Venture Philanthropy Association) -- removing the explicit reference to venture philanthropy for reasons related to this link. The concept of venture philanthropy evolved – in certain contexts – not necessarily in sync with EVPA’s narrative, sometimes being associated just with strategic philanthropy, whereas it has always been about social investment as well. To make sure to keep representing the entire spectrum of impact capital, Impact Europe went for this rebranding.
And what about ‘traditional investing’ and ‘ESG investing’?
‘Traditional investing’ doesn’t aim for impact. ‘ESG investing’ incorporates Environmental, Social, and Governance factors into the investment decision-making process and is mostly used as a strategy to mitigate risks for investors.
How has the term ‘investing for impact’ evolved over time?
Our Impact Strategy Paper of 2019 articulated investing for impact as “Supporting and co-developing innovative solutions to pressing social issues, taking on risks that no other actor in the market can take – or is willing to take.” The same year, members and the board endorsed a Charter for Investors for Impact, which collected 10 principles involved in the approach. These publications remain relevant today. But their reception in a growing ecosystem complicated the evolution of the term. Our classification was perceived by some investors as judgmental, as it portrayed an opposition between ‘impact investing’ and ‘investing for impact’ some stakeholders no longer saw as fit for purpose. Today, we include ‘additional impact investing’ within ‘impact investing’ and ‘investing for impact’ – and if this sounds complicated, the image of the spectrum above paints a clearer picture. Notably, the term encompasses both catalytic grantmaking and additional impact investing.
I don’t see ‘investing for impact’ in what I do – is there still a place for me in the Impact Europe network?
Absolutely. There are many members of our network who wouldn’t use ‘investing for impact’ to describe their organisation’s mission or activities – and we welcome that diversity. And we’d welcome the chance to talk to you about membership.