4 – Building Impact Classes

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In the same way asset classes cluster investments by the way they deliver financial return, impact classes are intended to cluster investments by the approach they take to delivering impact, providing a useful, intuitive method for quickly sorting through a fast-growing universe of investment opportunities, across asset classes and in both private and public markets.

As illustrated by the diversity of useful frameworks in the section above, impact classes cannot and are not intended to provide a comprehensive depiction of the impact in impact investments. Impact classes are instead a high-level categorization, used early in the investment process, to narrow the universe of potential investments to a set that is more aligned with an investor’s preferences.

Key characteristics of impact classes

Given the need identified for a broad, encompassing, and high-level categorization; it has become clear from research, interviews, and group discussion that impact classes should be:

– Straightforward and compelling: Impact classes that can be easily understood will likely have wider adoption and be more useful as a result.
– Limited in number: The fewer the number of impact classes, the more likely they are to yield efficiency benefits.

– Meaningful, but objective: Impact classes need to offer product providers the opportunity to distinguish their work, but retain the possibility of third-party verification.
– Neutral on the degree or quality of impact: Impact classes need to be descriptive without making value judgments.

– Inclusive, cutting across asset classes, sectors, and public and private markets: One of the most promising opportunities for impact classes is to be able to compare the impact dimension of investments across asset classes, across sectors, and consequently, across a portfolio.
– Categorical and exhaustive: Impact classes should capture and distinguish the depth and breadth of activity in impact investing, but also not stifle further innovation.

Component variables of impact classes

Impact ratings and certifications consist of literally hundreds of variables. For impact classes to serve the simple purpose for which they are intended and align with the characteristics listed above, some limited set of variables must be selected as core elements.

Impact investments are “investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return,” according to the definition used by the GIIN. Following from this definition, three key components of impact investing are intentionality, approach, and measurability/accountability.

As the Navigating Impact Investing project focused on these components, it became clear that “intentionality” defies easy categorization. Though intentionality is an essential component of the commonly accepted definition of impact investing, both the ways investors intend to have social and/or environmental impact, and the types of impact targeted by investees are innumerable and idiosyncratic. Even with broad categories like those laid out in IRIS’s impact objectives, a significant number are required to capture the breadth of activity in impact investing (Figure 9). The project instead focused on variables that distinguish between approaches and measurability/accountability practices. There are a number of variables impact investors and investment managers use that address these components of impact investing. The project was an attempt to identify or create those that are as objective, simple, and universal as possible.


Tideline evaluated dozens of potential variables utilized by investment managers and narrowed in on three that offer the potential to distinguish investment managers’ impact practices at a high level: (1) the role of impact investing capital; (2) the type of impact evidence; and (3) market and beneficiary characteristics.

Potential variable 1: Role of impact capital

There are a discrete number of reasons why impact capital might be needed in a market and a discrete number of broad strategies for creating impact using capital. For example, an investor may prefer to invest primarily in pioneering efforts that develop new and untested business models, or alternatively in scaling proven, impactful solutions in more mature markets – each of which are valid and compelling purposes.

These examples speak to the role of impact investing capital. While the role of impact investing capital is often closely related to a business model’s stage of development, it also draws in other considerations such as the nature of the beneficiaries being targeted or the maturity or inefficiencies of the market in which an investment manager operates.

This variable has already been put to use in segmenting investments, including by BlackRock. In describing the types of “sustainable” investments offered through its platform (Figure 10), BlackRock highlights three roles for an investor’s capital: preventing negative impacts, through exclusionary screens; promoting positive impacts, through investments in companies furthering ESG factors; and advancing social/environment objectives, through investments with impact targets.


Impact classes could similarly use “role of capital” as a variable to provide further definition, characterizing different impact investments by how they advance both social and financial objectives.

BlackRock’s approach to segmentation is consistent with many frameworks used to describe the impact investing market, including the Bridges spectrum of capital presented above. What is unique in this case is the role of capital is not just descriptive, but is framed as an objective which investors may choose to pursue alongside other goals and preferences, both impact and financial.

Figure 11 draws on the literature, including BlackRock’s work and the categories Omidyar Network described in its 2012 “Priming the Pump” report,29 to highlight one way impact investments could be categorized by the role of impact capital. Investment managers would not necessarily be confined to the opportunity to provide additional detail later in the investment process.


Potential variable 2: Type of impact evidence

The type of impact evidence collected by impact investment managers ranges from the assessment that an investment’s practices and activities are broadly consistent with a targeted impact, to high-quality data on beneficiary outcomes that is sufficient to allow for a determination of the cost-effectiveness of an intervention.

The impact evidence variable (similar to the “impact assurance” variable in the report by K.L. Felicitas and NPC in the section above) is a compelling way to segment the impact investing market for a number of reasons:

• The kind of evidence an investment manager collects already plays an important role in an investor’s decision to allocate capital, since many investors have requirements or preferences for how impact is demonstrated. For example, when foundations make Program-Related Investments, they need to justify their charitable purpose and have specific requirements for how impact is measured. They may want high-quality data on outputs of the business (such as how many borrowers repay their loans) or even data that relates to changes, or outcomes, for specific beneficiaries (such as how many farmers experience an increase in their income after the purchase of a new seed or tool). Governments often want even more evidence, such as data demonstrating the cost-effectiveness of their investments compared to other means of achieving similar outcomes (pay-for-success contracts are a good example). For other impact investors, the alignment of an investment manager’s practices and activities with a specific area of impact is satisfactory, and they express no need for the collection of specific impact data. Others may look for a clearly defined impact thesis, efficient measurement of related outputs relevant to this thesis, and a handful of anecdotes that demonstrate the process of creating impact as their ideal.

• The variable is relatively objective, is nonjudgmental, and can be determined without extensive due diligence.

• The variable also serves as a proxy for the specificity of the impact being targeted. For an investor with very focused social or environmental goals, more evidence might be required to gain assurance on progress toward these goals. For broader or more systemic social or environmental goals, progress might be too difficult or inefficient to measure conclusively, making strategic collection of less data preferable.

Despite the need, there is not currently a clear, universal way of discussing types of impact evidence. Figure 12 highlights one potential way of categorizing, building upon the elements of the logic model commonly used in the non-profit sector.


It is important to note the impact evidence variable is not intended to imply that investment managers should only meet the evidence requirements of their prospective investors, or to otherwise curtail the effort to gather deeper impact data. In fact, there are many reasons why investment managers may go beyond the requirements of investors, including because exploring their impact more deeply may provide insights that enhance performance, or as part of an investment manager’s overarching commitment to impact.

Potential variable 3: Market and beneficiary characteristics

Some investment managers are hesitant to be boxed in to high-level categories. In reality there are many nuanced factors that bring greater definition to an investment manager’s unique impact investing approach.

Three factors arose repeatedly in conversations with practitioners:

Beneficiary – the extent to which the people, places, or systems being targeted are disadvantaged, under threat, and/or lack access to resources and opportunity;

Market – the extent to which the market in question is relatively new, emerging, or subject to systemic challenges; and

Capital need – the extent to which the capital being provided to an investee plays an essential role in making the impact possible.

Figure 13 below illustrates one method for categorizing investments by these characteristics, using a dichotomous approach for each factor:


Further research is needed to explore how these characteristics might best be incorporated into a prospective impact class framework.

Testing impact classes

Combining the role of impact capital and type of impact evidence variables described above could yield a matrix like the one pictured in Figure 14. This framework allows investment managers to find an appropriate cluster along two dimensions that describe why impact investing is needed (role of impact capital) and how the resulting impact is demonstrated (type of impact evidence).

“Impact classes,” in this case, could be each of the individual cells of the 3×4 matrix below, or could be groups of cells with overarching characteristics in common (i.e., A, B, and C in the matrix). Impact class “A” would include investment managers focused on influencing or scaling the impacts of generally more mature investees and providing evidence of these impacts by pointing to consistent investment practices or the resulting investee outputs. Impact class “B” would contain investment managers with a demonstrated practice of seeding or growing impactful businesses, or closely tracking the social or environmental outputs or outcomes of established businesses they influence or scale. Impact class “C” would include investment managers who seek to seed or scale business models that typically seek highly specific outcomes or proven impacts.


The framework is but one example. Impact classes could take other forms, or may be comprised of different variables; but elements of this framework resonate with the envisioned characteristics of impact classes listed above. The framework provides categories that are descriptive and nonjudgmental, allowing investments to be placed with clarity and consistency, and the push for objectivity facilitates external validation. While investment managers may self-identify, as a first step, clearly defined criteria for each cell can help investors and the market determine whether an investment manager has self-categorized appropriately.

29 Bannick, M. and Goldman, P. (2012). Priming the Pump: The Case for a Sector-Based Approach to Impact Investing. Omidyar Network.

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One thought on “4 – Building Impact Classes”

  1. Do you think the project team has laid out the right criteria for designing impact classes? Are there some variables that you find more intriguing and/or practical than others?

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