Introduction and background

Impact investing presents a unique opportunity to mobilise capital markets to solve social and environmental problems. Over recent years, the growth of the industry has led to greater diversity and complexity, creating an increased need for clarity and understanding. This report aims to address this need by providing an overview of the field and discussing its challenges.

Market practices

The report begins by providing an overview of the impact investing process, which involves many complex decision-making steps. To help address the complexity, the report has identified market practices and tools that provide clarity on each of the considerations. These practices include defining vision and motivations, developing a strategy and narrowing investments, executing strategy, and evaluating performance. The report details specific tools used in each of the stages, such as the RPA Landscape tool, Barclays behavioral tool, and Bridges Impact Radar.

Building impact classes

This section introduces the concept of “impact classes”, which can be described as creating a common structure for evaluating impact investing options. The impact class system is designed to solve the current challenges of the industry, including the lack of common language and confusion around reports. The report suggests that if designed carefully, impact classes have the potential to bring efficiencies to asset owners and their advisers, improve consistency, and provide a classification system for the market. The report suggests that the way to divide impact classes is by considering the “Role of impact investing capital”, the “Type of impact evidence”, and the “Market and beneficiary characteristics”.

Using impact classes

The report gives an overview of how the impact class system works by using three hypothetical case studies as examples. The case studies include; Domestic new business investment, a focused community development opportunity, and a diaspora bond offering. Each case study outlines a specific impact class system that involves placing investments into broader categories, which can provide immeasurable benefits to the industry.

Responses to the impact class concept

The report discusses responses to the impact class concept. The primary focus revolves around making impact classes actionable and grounded in practical applications. The report suggests that further research and engagement, clarity on purposes and audiences, a definition of impact class variables, and determination of how to accomplish widespread adoption is required to bridge the gap between theory and real-world applications.

The way forward

Finally, the report outlines the way forward for the impact investing industry by suggesting that creating an “impact class” common structure for evaluating impact investing options can contribute to greater efficiency, standardisation and improved classification system for the market. Impact classes have the potential to bring a significant positive change within the industry to mobilize capital markets to mitigate social and environmental challenges.

The report provides a clear and comprehensive overview of the issues involved in the impact investing field. Impact classes are identified as a possible solution to the current difficulties faced by the industry, and the case studies offer practical examples of how such a system may work. Overall, this report offers valuable insights for those working in the finance sector to navigate the challenges of impact investing.