1.1 Screening

An impact investment is one where investment capital is used to drive social or environmental good. To do this, the underlying investee organisation must have impact — rather than an unadulterated profit motive — built into its core values. These values are most often expressed in a mission statement.

With regard to mission, investee organisations may be screened for:

• primacy

  Is the organisation driven primarily by a social or environmental mission? Does the mission guide what it does, and in such a way as to distinguish it from a pure profit-maximising company?

• investor alignment

  The mission is expected to be both clear and concrete as to the problem the organisation is tackling, the people it will reach, and the anticipated outcomes and impact (see mission). Do the values expressed in the mission, and the focus and approach, align with the investor’s interests and aims?

• mission lock

  Is the mission embedded in the organisation’s governance structures and governing documents?

• congruence and risk of mission drift

  Is the organisation’s business model, including its operations and activities, congruent with its mission? Is revenue generation in step with the creation of social value? Is its cost base concerned primarily with the achievement of its mission? Are there potential tensions between profit interests and social benefits, with a risk that the latter may become compromised by the former?

• mission-aligned exit

  Is there a route toward the repayment of the investment capital (and financial return) while ensuring that the mission is sustained and carried into the future?

The investor may want to screen for the proposed use of the capital. Of greatest importance is that the organisation is clear, and can present a detailed business plan as to how the investment capital will be used, and how this will ultimately support the organisation’s impact. The purpose of the investment may be to capitalise impact-generating activities directly, and to expand them. Alternatively the focus may be on strengthening the financial position and resilience of the organisation. If so, it nevertheless remains important to consider the organisation’s outcomes, and how these will be affected by the proposed strengthening (strengthening an organisation that is not achieving any impact is of little use to the impact investor, or to the problems under address).

As assurance of good governance, the investor may wish to screen the organisation’s governance structure and key personnel, as well as aspects of the internal processes.

• structure

  Are relevant and well-formed governance structures in place (for example, a board with genuine powers that meets regularly)? Is the governance structure consistent with and supportive of the organisation’s mission and activities? Is the organisation compliant with the necessary and relevant regulations? An investor may further look for the use of specific structures, such as the organisation being a registered charity, CIC or cooperative (industrial and provident society).

• key personnel

  Are the leading staff and board members appropriately experienced, with a shared vision, and without obvious conflicts of interest? N.B. Getting to know the organisation’s key personnel well is a crucial part of the in-depth analysis and due diligence stage (see analysis). What is implied here at the screening level is more a brief check.

• internal processes

  Are the organisation’s internal operations consistent with the principles of social and environmental sustainability? This may include screening of the organisation’s policies with regard to its employees (covering e.g. wages, benefits, leave, safety, democratic processes, non-discrimination) and its environmental management (covering e.g. recycling, energy saving, and taking care where possible to reduce environmental impact).

An investor may wish to pay particular attention to the organisation’s use of profits (especially if there are constraints upon the investable capital, for example, that it must be used for specifically social as opposed to private benefit).

• use of profits

  What is the anticipated use of profits? Does the organisation have an explicit policy around the use of profits — for example, that 50% of profits or more must be used for socially-beneficial purposes (this may include reinvestment in impact-generating activities, or donation to a suitable charity, such as a partner-foundation)? Is there a limit to the proportion of profits that can be distributed to shareholders, or in bonuses or salary packages to executives?

• asset lock

  Are the organisation’s assets protected such that, if sold, the money will remain within the organisation? In the event of a wind-down, will the assets be distributed for social purposes, or can they be sold to pay shareholders or executives?

To deliver tangibly on its mission, the investee organisation must be able to demonstrate the impact it is generating, and how this relates to its finances and the impact investment itself.

• impact evidence

  Is the organisation demonstrably achieving its mission? Is it generating real positive change for its beneficiaries and/or the environment? Is this being evidenced in some form?

• transparent impact reporting

  Does the organisation show its commitment to evidencing the achievement of its social or environmental aims through its impact measurement and reporting? If the organisation has no track record of impact reporting, is it ready to measure and report on its impact in the future, and with respect to the impact investment?