The KL Felicitas Foundation (KLF), managed by Sonen Capital, have invested their US$10m of foundation assets into impact for 13 years. From day one, transparency, both on the financial returns and the social and environmental impact achieved by their investments, has been paramount. Learning from, and sharing, their failures as well as their achievements matters to them deeply. Their mission is to transform the global financial system so that, one day, every investment made by any individual or institution accounts for its social and environmental impact, positive or negative.

The Kleissners’ goal with their foundation is twofold: to create a 100% impact portfolio with the deepest possible impact while achieving market-rate returns for the portfolio as a whole; and to build the impact investment field.

This updated report focuses on financial returns as well as social impact. A wider spectrum of investments has been assessed including publicly listed investments, their contribution towards the UN’s Sustainable Development Goals (SDGs) is considered, and further data was obtained from investees. NPC’s Impact Risk Classification framework was also updated to align with the latest thinking in the impact-investing field, particularly drawing on the work of the Impact Management Project.

The financial performance of the portfolio demonstrated that on a weighted total portfolio basis net of performance fees, the KLF total return-based impact reportable portfolio (i.e. all investments with reportable performance excluding impact first investments) has returned 2.75% p.a. since inception, outperforming the benchmark. The impact first reportable portfolio (made up of KLF’s Program-Related Investments (PRIs), often accompanied by a grant) has returned -2.5% p.a. since inception. The aim to date of KLF’s impact first investments has been to achieve 0% returns, although this has not been achieved due to their intentional risk-taking with the PRIs, prioritising social impact over financial return with this portion of the portfolio.

The report highlights that the majority of KLF’s investments are delivering on their own impact goals, the sustainable elements of the fund are achieving social and environmental impact, KLF’s investees are contributing to 16 of the 17 SDGs, and there has been an improvement in the impact practice of the portfolio since the 2015 analysis. The top seven SDGs to which KLF investments made the most significant impact are explored with specific case studies and examples of the social impact of different initiatives within the investment portfolio provided. In addition, six individual impact investment case studies show how the frameworks and tools can be applied to a range of different impact investments.

The top seven SDGs were:

• No poverty
• Zero hunger
• Good health and well-being
• Clean water and sanitation
• Affordable and clean energy
• Decent work and economic growth
• Life on land

1. Impact investing is now a very significant asset pool. By some estimates, in 2016, over US$10 trillion of global assets were using sustainable strategies including environmental, social, and corporate governance (ESG) factors, impact and community investing, and sustainably themed investing. Even more significant is the rate at which sustainable investment is growing, up 41% from 2014.
2. As interest from individuals, institutions, and foundations gathers pace, so too has the involvement of global blue chip financial institutions, normally best known for a relentless focus on the single bottom line of pure financial return. BlackRock, UBS, Goldman Sachs, Bain Capital, and TPG are just a few of the institutions that now offer impact investment solutions to their clients.
3. If we are to ensure that this growing pool of assets has measurable and relevant impact then it is vital that we do our very best to assess the social and environmental outcomes of those investments and get a handle on the likely impact of that capital. These efforts need to be transparently measured and widely reported. Without such transparency, the risk is that impact falls short of expectations, investors are disappointed, and the field fails to grow, loses momentum, or worse.
4. Two fundamental lessons are highlighted in the report:
   1. Despite challenges for investors and investees, it is possible to measure the outcomes of a wide spectrum of investments across different asset classes and impact categories.
   2. Impact (of varying degrees) can be achieved while gaining a financial return (of varying levels).
5. The report found that there is broadly an inverse relationship between financial return and impact practice.
6. KLF believes that an impact investor that does not have failures among their investments may not be reaching for hard-to-achieve impact and that failure to achieve appropriate levels of impact should be grounds for divestment or re-categorisation.
7. There is a growing focus on impact measurement and management, being driven more by organisations themselves rather than investors. This is particularly the case when business metrics and impact metrics are so closely aligned and where tracking impact data is central to understanding and improving revenue generation. However, more investors are demanding to see qualitative data, such as case studies, to better understand impact.
8. SDGs are viewed as a useful framework by most investees, whereas the Global Impact Investing Network’s Impact Reporting and Investment Standards catalogue of impact metrics were regarded by some as less relevant (and in some cases not even known about). There were mixed views about other standards, such as the Global Impact Investing Rating System and B Corp certification. Some organisations have benefited from the ratings process, while others are concerned they are too unwieldy, not relevant, or come with the risk of constraining them to a particular direction.