Module Overview
When we invest for impact, are we aligning our portfolios with our values, changing the world, or both?
This module focuses on Investor Contribution. In Module 9, we considered what outcomes stakeholders would have experienced in an enterprise’s absence. In this module, we will consider what outcomes stakeholders would have experienced in the absence of the investor.
As with Enterprise Contribution, assessing Investor Contribution involves counterfactual analysis. This is another frontier topic in impact management for which best practices are still emerging. We will use the Investor Contribution strategies identified by the Impact Management Project as a starting point for thinking about how to build Investor Contribution into an impact rating. To keep track of some of the latest developments in this area, see ‘Industry research’ in the ‘Additional resources’ section below.
As with Enterprise Contribution, Investor Contribution is relevant for all investors, and essential for those with a goal of causing changes in outcomes
Investors’ capital and/or non-financial engagement does not always cause changes in outcomes that likely would not have occurred otherwise
To evaluate whether their capital and/or non-financial engagement results in Investor Contribution, investors must consider counterfactuals at three levels of the capital chain:
Investor level: the difference between your capital and/or non-financial engagement, and what an enterprise likely would have received in your absence
Enterprise level: the difference between the activities you expect the enterprise to undertake as a result of your capital and/or non-financial engagement, and the activities they likely would have undertaken in your absence
Stakeholder level: the difference between the outcomes experienced by stakeholders as a result of the enterprise’s activities with your capital and/or non-financial engagement, and the outcomes stakeholders likely would have experienced in your absence
Key concepts in Investor Contribution
Investor-level scenario analysis: a low-cost, structured way of thinking through likely counterfactual scenarios to assess Investor Contribution
Investor Contribution strategies identified by the Impact Management Project:
Grow new/undersupplied capital markets: when an investment causes or is expected to cause…
A change in the amount, cost, or terms of capital available to an enterprise that enables them to deliver impact that likely would not have occurred otherwise; or
A change in the price an enterprise’s securities, which in turn incentivizes the enterprise to improve its impact
Engage actively: when an investor’s non-financial engagement with an enterprise causes a change in their activities, which in turn causes a change in stakeholder outcomes that likely would not have occurred otherwise
Signal that impact matters: when an investor commits to factoring enterprises’ measurable positive and negative impacts into their investment decision-making – such that impact considerations could lead to a different investment decision – and communicate that commitment to investees and the market at large such that, if sufficient numbers of investors did the same, it would lead to a ‘pricing in’ of social and environmental impacts by capital markets
- Read: Investor Contribution
- Read: Emerging Consensus on Investor Contribution in Public and Private Markets (Impact Management Project)
- Read: Negative Investor Contribution (Impact Management Project & the Predistribution Initiative)
- Read: ESG 2.0 (the Predistribution Initiative)
- Read: The Investor’s Guide to Impact (University of Zurich)
- Read: Investor Contribution 2.0 (Impact Frontiers & the Predistribution Initiative)
- Read: Investor Contribution Definitions & Strategies
- Template: Direct Investment & Engagement Impact Templates for Private Market Investors
- Template: Investment Structures & Governance Disclosure Templates for Private Equity, Private Debt, and Venture Capital
- Watch: Introducing the ‘Elephant’ of Investor Contribution
- Explore: Research & Resources Database for Investment Structures and Governance
- Explore: Compiled Metrics for Investor Contribution
Key Concepts – Investor-level scenario analysis, IMP investor contribution strategies
Investor Contribution involves counterfactuals at the investor, enterprise, and stakeholder outcome levels. The strategy we introduced in Module 9 can help us think through this multi-layered analysis.
Building an Impact Rating - Investor Contribution
Investors can, but do not always, influence stakeholder outcomes through their capital allocation and engagement. The Investor Contribution dimension of an impact rating takes stock of whether or not an investment is likely to do so.
Additional Resources
- Read: Investor Contribution
- Read: Emerging Consensus on Investor Contribution in Public and Private Markets (Impact Management Project)
- Read: Negative Investor Contribution (Impact Management Project & the Predistribution Initiative)
- Read: ESG 2.0 (the Predistribution Initiative)
- Read: The Investor’s Guide to Impact (University of Zurich)
