Features | January 16, 2019

Impact-linked financial rewards help high-impact companies attract growth capital

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, January 16 – Companies that hit impact milestones can reap a range of rewards aimed at making them more investable.

For example, Clínicas del Azúcar, a network of low-cost diabetes clinics in Mexico, increased the ratio of low-income clients it served from 31% to 36% and improved blood-sugar levels. The firm, which was paid $134,000 by the Swiss development agency, says the incentives have helped it raise $1.5 million in equity from impact investors.

Such impact-linked finance schemes, detailed in a new report from Germany impact consultancy Roots of Impact and Boston Consulting Group, aim to nudge ventures towards greater impact by helping them attract the financing they need to scale. In some cases, it is the investors themselves that provide incentives such as lower-cost capital. UBS Optimus Foundation will lower interest payments on a “Social Success Note” to Impact Water if impact targets are met.

And Beneficial Returns has agreed to waive the final payments on loans to Sistema Biobolsa and Iluméxico in Mexico if the firms achieve their stated impact goals. The schemes are different from social-impact or development-impact bonds, which pay out to investors when impact goals are met. Impact-linked financing rewards companies directly.

  • Financial rewards. Incentives can take the form of direct payments or preferential financing terms when impact targets are hit and verified. In an earlier report, Roots of Impact detailed a half-dozen such instruments that could help scale up off-grid clean energy, including guarantees that scale up with an enterprise’s expected impact performance.
  • Tests to watch. Roots of Impact is testing its Social Impact Incentives model at Village Infrastructure Angels, a solar-agtech company in Honduras, and Peruvian enterprise Inka Moss, which helps local moss harvesters access international markets.