Among the formidable challenges facing the further development of the impact investing market is the lack of an accepted framework for assessing deal structures that can be utilized as an asset allocation tool by the full spectrum of impact investors. “Investing for Impact: Case Studies Across Asset Classes,” begins to fill this breach. A joint project of London-based social investment firm Bridges Ventures, strategic advisors The Parthenon Group (with offices in Boston, London, Mumbai and San Francisco), and the New York-based Global Impact Investing Network, “Investing for Impact” follows on the earlier comprehensive studies of the sector published in 2009 by the Monitor Institute (“Investing for Social and Environmental Impact”) and Rockefeller Philanthropy Advisors (“Solutions for Impact Investors”).

What sets this latest report apart is a succinct, formatted presentation of a significant number (19) of deals and funds. Each deal is outlined in terms of the investor motivation(s) (financial first, impact first or a “layered” combination of the two); the asset class; the sectoral area of impact (community banking, rural poverty, sustainable forestry, etc); the specific social/environmental impact; and the financial impact as measured against a relevant financial benchmark. For example, the first case provides background on financial-first investor TIAA-CREF’s Shorebank Deposit Program, which allows the institution to earn a financial rate of return of 1 year treasuries plus a premium as part of its Community Bank Deposit Program. Shorebank in turn measures the social and environmental impact of TIAA-CREF’s deposit investment through its extension of conservation and/or community development loans and advisory services, with over $371 million mission loans extended in 2008. Bridges Ventures Social Entrepreneurs Fund is presented in a case study of an impact- first investor vehicle. The fund, which invests in social enterprises that want to scale up but have not yet generated the level of financial returns required to attract commercial capital, offers a target financial return of 3-5% net of fees, and losses, with social impacts measured by Bridges Social IMPACT scorecard.

The study also highlights two “layered” deals. These involve structures unique to impact investing, where both financial-first and impact-first investors participate. The first “layered” case is The International Finance Facility for Immunisation (IFFIm). Launched by The UK government to help fund the GAVI (immunization) Initiative, which was seeded by a $1.5 billion grant from the Gates Foundation, the IFFIm has received an additional promise of $5.3 billion in grants the UK, France, Italy, Spain Sweden and Norway to be donated over a 20-year period. Thanks to the grant provisions the facility was able to achieve a AAA/Aaa rating and offer returns at a small premium to government bonds of the same rating. Consequently the facility has been able to attract $1.6 billion in funding from financial-first global investors, both retail and commercial. On the impact side, the facility has enabled the protection of 213,000 children and prevent 3400 premature deaths. The second layered deal described by the report, The New York City Acquisition Fund, includes a consortium of financial-first investor banks and a group of impact investors including The City of New York, the Ford Foundation and the Rockefeller Foundation. The banks have provided $160 million in senior debt indexed to the prime rate, and the impact first investors have funded $40 million in low-interest subordinated loans. The fund’s objective is to provide 30,000 units of affordable housing over a period of 10 years in New York City.

Among the noteworthy and hopeful conclusions drawn by the authors of “Investing for Impact” is the evidence that many “impact-first” funds have evolved into funds that are also attracting “financial-first” investors. Launched initially by foundations or high net worth individuals who were willing to accept a below-market rate risk-adjusted return to achieve deep social or environmental impacts, these funds have established track records of success, generating risk-adjusted returns that are drawing in commercial and institutional investors. This highlights the pivotal role that those willing to accept below-market rate returns will continue to play as they help to “seed,” deepen, and broaden the impact investing market for financial-first investors.

“Investing for Impact” also makes the point that, increasingly, new impact capital is achieving market rate returns, often without any form of subsidy. This new capital is being deployed across an increasingly wide asset and geographic spectrum: “In Mexico, Ignia is developing housing communities for families who earn less than $10,000 a year while still targeting above market-rate returns,” the study reports. “In Honduras, Pico Bonito is looking to receive a 20% IRR from the regeneration and sustainable forestry of native forests adjacent to a national park without the aid of local government subsidies. These investment vehicles are examples of how expansion into new asset classes is helping to broaden the reach of Impact Investment, while allowing investors to diversify across multiple asset classes.”

The stakeholders who have thus far nurtured the Impact Investing market have dedicated themselves to preserving its integrity of purpose. It might be said that the nature of this commitment is without capital market precedent. However, “Investing for Impact” sounds a cautionary note, raising the central question as to whether the same levels of impact can continue to be achieved for a given rate of financial return as the sector scales up to meet the pressing social and environmental challenges of the global village The answer to this question, the authors of the report maintain, “will prove critical to the future of the sector.”

(The study offers an excellent Appendix on Market Benchmarking and a comprehensive Appendix of Further Reading and website sources)