1.1 Screening

Understanding of what constitutes a social purpose organisation or social business varies, and different investors will emphasise — and screen for — different things. In addition to this, investors may have specific constraints regarding their use of investment capital (for example, a particular tax status, or legal or governance obligations), with further implications as to what can and cannot be regarded as “sufficiently social”. In devising their screens, investors will determine for themselves where to place stress, and how strict to be on different points. What remain consistent however are the kinds of concerns investors have around eligibility:

1.1.1 Mission

Is there an effective and well-designed mission in place?

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?

1.1.2 Use of Investment Capital

Does the investment support the organisation and its generation of impact?

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).

1.1.3 Governance

Does the organisation show good governance?

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).

1.1.4 Profits and Assets

Is there assurance that the use of profits and assets will be in line with the mission?

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?

1.1.5 Impact Evidence and Transparency

Is there evidence of and regular and transparent reporting on impact performance?

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?

A screen needn’t be prescriptive on all fronts, or operate merely as a series of walls to clear. Instead there may be a balance within the application of the screen among different areas. For example, attention to the use of profits may become more important if there is an identified risk of mission drift; transparency may balance concerns around governance, and so on. If so, it is important the balancing mechanisms be defined, as the key purpose of having a screen is to move from a judgement call to a clear procedure.

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