Size of the Market and Demand
Section 2 | BVCA Impact Investor Knowledge Hub
Impact Investments are investments made with the intention to generate positive, measurable, social, and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets and target a range of returns from below market to market rate depending on investors strategic goals.
This definition is further defined by the following characteristics:
- Intentionality – refers to the impacts investors intention to have a positive social or environmental outcome from the investment.
- Investment with return expectations – whilst some investors are ‘impact-first’ and aim for capital preservation, investors often also seek commercial returns from impact investments.
- Range of asset classes – impact investments can be made across multiple asset classes (see Impact in Action below).
- Impact measurement – a trademark of impact investing is the commitment to measure and report on the social and or environmental performance of the investment enabling transparency and accountability.
Investment enables economic activities, which have positive and negative effects on the environment and society. Impact investing aims to contribute to or catalyse positive effects (e.g., improvements in people’s lives and the environment) while achieving a financial return.
Another key characteristic commonly associated with impact investing is ‘additionality’ i.e. the chances of the desired outcome happening without the investment/intervention. However, it is worth noting that this does not form part of the GINN definition.
Background to Impact Investing
Traditionally, investment has focused purely on financial return, with little consideration of impact. If asset owners also wanted their capital to benefit the world, they had to do that via philanthropy – which typically focuses purely on impact, with financial returns being secondary.
This view has since evolved, and there is an increased understanding and evidence that it no longer has to be a binary choice: in fact, these are just two ends of a spectrum, with a range of investment opportunities in between.
The ‘Spectrum of Capital’ (first published in 2014 as part of the G8 Social Investment Taskforce) was developed to illustrate the range of investment from traditional investment to Responsible, Sustainable, Impact-driven, and Philanthropy investment. The Impact Management Project (IMP) (now Impact Frontiers) - a collaborative global initiative, set up to agree a set of standard norms for measuring and managing impact – expanded on this spectrum, identifying three ‘impact goals’: ‘Avoid harm’, ‘Benefit all stakeholders’ and ‘Contribute to solutions’, which reflect the intentions of the investor. This is encompassed into the broader ‘impact economy’.
From the IMP’s network, the Impact Management Platform was also created – a hub of resources to promote interoperability between resources, guidance and frameworks. The other resources developed by the IMP have now migrated to Impact Frontiers following its conclusion in 2021).
Spectrum of Capital
Updated Spectrum of Capital
This updated Spectrum of Capital is based on the original Spectrum of Capital by Bridges Fund Management and The Impact Management Project 2017. As part of this update, the BVCA has chosen to include the SDR labels to help illustrate where impact investing fits within private capital. This is not meant to be a regulatory map, but a diagram to help illustrate this message. All of these investment strategies can be executed across a variety of asset classes, including debt, private equity, venture capital, infrastructure and real estate.
IMP Definitions
IMP Definitions
Explore other sections in the Knowledge Hub
Measuring and Managing Impact
Section 3 | BVCA Impact Investor Knowledge Hub
Useful Resources
Section 4 | BVCA Impact Investor Knowledge Hub