Impact investors are presented with a multitude of potential investee organisations and investment opportunities. As the market continues to expand, and the concept is applied at greater scales, and to an increasingly broad range of social and environmental purposes, the number and diversity of calls upon impact-seeking investment capital will grow significantly. In order to manage this flow, it is useful for investors to have a preliminary screen.
All impact investors will have a sense of what they do and do not feel is appropriate for them. A formal screen ensures there is a quick, clear and consistent means to check the fit of any potential investee prior to entering into the much more lengthy analysis and due diligence processes required to make an investment decision. There are likely to be two aspects to this check:
Impact investors will need some form of assurance that the prospective investment really does support impact, and that the underlying organisation is committed to its social or environmental aims.
Impact investors may have particular preferences as to the impact areas in which they are active (e.g. targeting a particular problem or region), the kinds of organisation they invest in (e.g. start ups, or organisations with a track record), and the sort of investment terms they are seeking (e.g. a minimum financial return, degree of liquidity, and so on).
The first aspect asks essentially if the proposed investment is valid as an impact investment; the second looks more to the contours and features of the investment, and asks how well these match up with the investor’s preferences or strategy. Addressing these questions suggests a two part response:
- screening potential investments and investee organisations for their legitimacy as impact investments
- mapping investments for how well they match up with what an investor is looking for
Aside from the operational advantages of screening and mapping, the process of devising a screen, and mapping out the conditions for suitability, can be helpful to investors with regard to clarifying for themselves the core values and areas of focus that will define the kinds of impact investments they make. It can further be of use for communicating these values and areas to others. While an investor may not wish to make the full details of their processes public, they can nevertheless be clear to potential investees as to the essential ways in which they are screening and mapping, and thereby determining what is eligible, and what is suitable, for their investment capital.