Beyond Trade-offs: A common language helps investors define their contribution to social impact



ImpactAlpha, July 10 – At the Impact Management Project, we have been following Omidyar Network’s Beyond Trade-offs series with interest. The debate about whether creating impact requires a trade-off in financial risk and return has tended towards unhelpful confusion and controversy. So it is heartening to see leading investors engaging so creatively across multiple points in the returns continuum.

The Beyond Trade-offs returns continuum provides a segmentation of the financial performance of investments. The Impact Management Project’s work focuses on their impact. By bringing these two pieces together, we can build a more complete understanding of investments’ performance.

We have seen that when investors can express their position on the returns continuum and their impact goals and performance, using commonly understood language that is descriptive rather than normative, they are able to collaborate more effectively with one another, with enterprises, and with other stakeholders. 

They are freed from the concern of being compared inappropriately with other investors that have different financial and impact goals and constraints. They are able to advocate for why their own approaches to impact investing are ‘right,’ without needing to imply that others’ approaches are ‘wrong.’ And all of us are able to direct our full energy to what brought us to this work in the first place – the opportunity to align our investments with our values, and to realize those values more fully for people and planet through our investments.

Integrating impact 

Since 2016, the Impact Management Project has engaged over 2,000 practitioners in a global effort to build consensus between all types of enterprises and investors on how to measure, report, compare and improve impact performance. 

Our work is driven by a vision that greater consensus on the definitional and technical aspects of impact measurement and management is essential for the practice of impact investing to scale with integrity, to borrow the Global Impact Investing Network’s apt phrase. 

By convening with this diverse range of practitioners, the Impact Management Project has been able to identify consensus about impact measurement and management norms. Below is a summary of what has been agreed to date:

The impact of an investment, or portfolio of investments, is a function of the impacts of the underlying enterprises and assets, plus the contribution that an investor makes to enable those impacts. 

The impacts of enterprises on people and planet can be deconstructed into five dimensions: What, Who, How Much, Contribution and Risk

ABCs. Enterprises and assets can be classified as ‘Acting to Avoid Harm’, ‘Benefitting Stakeholders’ or ‘Contributing to Solutions’ (i.e., A, B, or C). 

Impact classes. By combining the ABC assessment of the underlying asset with the investor’s contribution to impact, the impact class of an investment can be described and matched to the intentions and capabilities of different investors.

Investor contribution

The Impact Management Project consensus on investor contribution is especially relevant to the returns continuum discussion. An investor can contribute to the impact of an underlying asset (or portfolio of assets) using one or more of these four broad strategies, applicable across asset classes:

Signal that measurable impact matters: A commitment to factoring in the measurable impact that enterprises have, such that – if all investors did the same – it would lead to a ‘pricing in’ of social and environmental impacts by the capital markets. Often referred to as values alignment, this strategy expresses the investor’s values and is an important baseline. But alone, it is not likely to advance progress on societal issues when compared to other forms of contribution.

Engage actively, using expertise and networks to improve the environmental/societal performance of businesses. Engagement can include a wide spectrum of approaches – from dialogue with companies to investors taking board seats and using their own team or consultants to provide hands-on management support.

Grow new or undersupplied capital markets, by anchoring or participating in new or previously overlooked opportunities. This may involve more complex or less liquid investments, or investments in which some perceive risk to be disproportionate to return.

Provide flexible capital, by recognizing that certain types of enterprises do require acceptance of lower risk-adjusted financial return to generate certain kinds of impact. For example, creating a new market for previously marginalized populations can require very patient capital that cannot offer a commercial return.

The impact class framework uses multidimensional impact performance to differentiate strategies, rather than financial return. Thus, it complements the returns continuum effort. Indeed, Omidyar Network, along with Tideline and Cathy Clark of Duke University, first made the case that a set of widely embraced impact classes are important for the industry.

Big Tent

When we reviewed the Impact Management Project norms alongside the Beyond Trade-offs Continuum, we noticed three areas of alignment and one complementarity:

Impact, risk and return. Beyond Trade-offs and the Impact Management Project both encourage investors to articulate their goals across impact risk and return as well as financial risk and return, and to measure and manage performance accordingly. 

Omidyar Network’s returns continuum puts structure around the range of financial expectations that investors might have. Impact Management Project impact classes go into greater depth on what impact goal-setting, measurement, and management entails. Both dimensions are necessary elements of a well-informed and intentional impact investing practice.

Beyond Trade-offs: How leading commercial and catalytic investors are managing for impact, risks and returns (podcast)

Across the continuum. Beyond Trade-offs and the Impact Management Project both recognize that no point in the returns continuum, nor any Impact Management Project impact class or investor contribution strategy, is intrinsically superior to any other. This is a foundational worldview that we share. 

As we noted in our longer Investor Contribution paper, “Investors express a consensus that these strategies describe roles that investors may choose to play in the market, depending on their financial and impact goals, opportunities and constraints… For this reason, the investor contribution strategies are put forward in a descriptive rather than normative or hierarchical manner.”

The same is true for Impact Management Project’s impact classes. Much like financial asset classes, impact classes provide a shorthand for conveying the impact characteristics of an investment in a descriptive manner. And, much like financial asset classes, no one impact class is in every way better than any other. Some impact classes will be a better or worse fit for individual investors, based on those investors’ unique impact and financial goals and constraints. But all impact classes have a role to play in the market as a whole. 

Across impact classes. Investors and asset owners that have mapped their strategies to Impact Management Project’s Impact Classes often play across many impact classes rather than confining themselves to a single strategy – just as they are playing across Omidyar Network’s ‘returns continuum.’

In our impact class catalog, you can see how several investors have already mapped their investment products to the relevant impact classes. Just as in Omidyar Network’s infographic above, several offer distinct investment products in different impact classes (i.e., Grassroots, Neuberger Berman, Standard Life). Others play across multiple impact classes within a single portfolio (e.g., Root Capital). 

Investor contribution. The Impact Management Project consensus articulates investor contribution strategies that are available at different points on the returns continuum.

A1 (“Commercial, market validated”). In the A1 segment of the Beyond Trade-offs returns continuum, an investor might be signaling that impact matters, or might in addition drive increased impact by engaging actively.

Goldman Sachs: Big investors press asset managers to integrate ‘ESG’ and impact across portfolios (podcast)

By signaling, we mean proactively and systematically considering measurable positive and negative enterprise impacts in investment decision-making, and communicating this consideration to investee enterprises and to the market at-large. 

A single investor’s purchase and sale of publicly listed securities may be unlikely to directly cause change, but when a large enough share of investors speak with one voice, the cumulative effect can be transformative. For instance, investor pressure is frequently cited as a driver of changing practices among top energy companies (see most recently “Glencore, the King of Coal, Bows to Investor Pressure Over Climate” in The Wall Street Journal). An example of a ‘signalling’ strategy in Impact Management Project’s impact class catalog is Neuberger Berman’s Quantitative ESG Factor Fund.

Often, it is the combination of signaling and active engagement that drives change in public equity markets. John Goldstein of Goldman Sachs Asset Management provides an excellent example in McKnight Foundation’s advocacy to companies and fund managers on the issue of climate mitigation.

In the Impact Management Project’s impact class catalog, Clearbridge, Neuberger Berman, and Standard Life Investments have each self-identified multiple public markets funds as following Signalling + Active Engagement strategies. PG Life provides an example from private equity.

Prudential Financial: An 80/20 rule helps an institutional investor manage its risks, returns and impact (podcast)

A2 (“Commercial, not market validated”): Beginning in A2, investors add the potential to grow new / undersupplied capital markets, in addition to signaling and engaging actively. An example from Impact Management Project’s Impact Class Catalogue include Christian Super’s Renewable Energy portfolio and Vox Capital

Ford Foundation: Spotting mispriced risks in affordable housing, quality jobs and diverse managers (podcast)

The specific threshold between ‘Signalling” and “Growing New or Undersupplied Capital Markets” was discussed in the Impact Management Project consensus-building process. Investments are classified as “Growing” if the investor has reason to believe that the investment caused or will cause:

  • A change in the amount, cost or terms of capital available to an enterprise that enables it to deliver impact that would likely not otherwise occur, or
  • A change in the price of the enterprise’s securities, which in turn pressures the enterprise to increase its social and/or environmental impact and/or rewards it for doing so.

B1 and B2: (“Subcommercial”): If the investor deliberately accepts a financial concession, the investment is additionally classified as “Provide Flexible Capital,” corresponding to B1 and B2 in the returns continuum. 

In Impact Management Project’s impact class catalog, Acumen, Bridges Fund Management, Grassroots Capital Management, and Root Capital have all self-classified certain of their funds as “Providing Flexible Capital.” For these investors – who often operate in contexts of deep market failures that inhibit commercial investment – “Flexible Capital” investments offer an opportunity to create direct impact on people and planet, or to catalyze system-wide impact, more effectively and/or more cost-effectively than would be possible with a purely philanthropic approach. 

Lok Capital: Blending commercial capital and smart subsidies for transformative impact (podcast)

We could not agree more with Omidyar Network that “There is no single ‘right’ way to do impact investing. Matching capital to clear-eyed expectations for specific market segments can help us fund lasting social and environmental change more efficiently while ensuring that impact investing lives up to its promise—on both impact and financial returns.” 

The Impact Management Project seeks to work collaboratively with the industry to co-create the transparency on impact that will make this vision possible. 


Mike McCreless is the head of investor adoption for Impact Management Project. Previously, he oversaw Root Capital’s impact assessment and social and environmental due diligence.

The Impact Management Project has teamed up with Harvard Business Review’s Idea Lab to create “Managing Impact,” a free, participatory forum for investors and enterprises to continue working through big impact management questions together. Participants can find discussions about:

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