Do Corporate Impact in 5 Steps

Companies can initiate impact investing through the foundation or the company; the steps apply to both. Nonetheless, some elements are more or less relevant depending on the chosen approach.

Step 1: Cultivate the Right Mindset

 While impact investing comes with numerous benefits, it might not always align with the typical business or philanthropy mindset. One must begin by understanding what impact investing is and fully embracing its unique characteristics.

>Acknowledge Unknowns: A corporate foundation might be unfamiliar with the operational dynamics of investments, while a company would need to get familiar with the impact sector's values. Moreover, impact investments often operate in unfamiliar markets, requiring companies to establish trust and gain local knowledge. Be prepared to invest time and effort in understanding these new environments.

>Embrace Versatility: Impact investing comes in various forms in terms of risk profiles, return expectations or time frames. Typically, a corporate foundation’s endowment or a company’s treasury require market rate returns, while other approaches are more flexible and can accept below market rate returns in exchange for higher impact.

>Broaden Perspectives: Impact investing is a powerful tool for achieving impact goals or addressing specific business challenges. However, taking too narrow an approach could mean missing out on broader opportunities. If an investment focuses on ecosystem building, for example, it may not immediately provide strategic benefits for your business or intended beneficiaries. Nevertheless, in the long term, these investments have the potential to yield unexpected and substantial returns, both in terms of impact or business benefits.

Step 2: Choose the Right Strategy

The second step involves pinpointing the optimal approach to achieve your objectives. While impact investing typically emphasizes both impact and profit, for companies, the strategic value is an additional consideration. This consideration can help companies decide whether to integrate impact investing within the company or the corporate foundation.

>Define the Strategic Value: Clearly outline the strategic value your organisation aims to achieve with impact investing. If the objective is to enhance capital efficiency and align investments with specific impact objectives, then the treasury department could be the appropriate area for this initiative. On the other hand, if the goal is to tackle a specific business challenge, extend the impact strategy into new sectors or foster learning about inclusive business, another approach might be more suitable and effective. In both cases, it is key to ensure alignment with the company’s sustainability strategy or purpose.

>Prioritise with Care: With impact investing, companies can pursue impact, profit and strategic value, but prioritising one may come at the expense of the others. It's key to differentiate between must-haves and nice-to-haves to ensure alignment with your overall objectives. Companies often identify one clear success metric, despite the fact that broader benefits might arise as well.

>Ensure Added Value: When defining your company's impact investment thesis, ensuring added value is crucial. Firstly, consider what unique support you can offer beyond financial capital. This means taking into account the corporate resources, networks and expertise that are at your disposal. Secondly, ensure that your investment thesis adds distinctive value to the sector in a manner that competitors cannot replicate. While this strategic thinking is common among companies, it also holds true for corporate foundations aiming to leverage non-financial support from their related company's strengths.

Step 3: Engage Relevant Stakeholders 

Before launching impact investing operations, it's essential to onboard a range of internal and external stakeholders. The specific stakeholders involved may vary depending on where impact investing is initiated and the chosen approach.

An approach that includes these stakeholders ensures that the implementation of impact investing is well-supported and aligned with the organisation's broader goals and objectives.

This list encompasses the stakeholders most frequently mentioned during our interviews.

Internal Stakeholders

1. Internal Leadership and Governance:

>Top Management: Ensure the buy-in for impact investing within the company, allocating resources and championing the initiative across the organisation.

>Board: Approve strategic direction for impact investing initiatives, ensuring alignment with the company's or foundation’s mission and values.

2. Financial Management:

>Treasury Department: Manage financial resources allocated for impact investing initiatives.

>Finance and Administration Department: Handle financial administration and reporting related to impact investing activities.

>Corporate Venture Capital: Ensure that their mandates and remits are distinct from the impact investing team's objectives, while also considering potential synergies.

3. Legal and Compliance:

>Legal Department: Ensure that all impact investing activities comply with relevant laws and regulations.

>Tax Department: Advise on tax implications and incentives, especially relevant when investments are made across countries.

4. Sustainability and Impact Measurement:

>Sustainability Department: Integrate impact investing efforts with broader sustainability goals and initiatives.

5. Business Operations:

>Middle Management in Business Units: Ensure alignment with the activities and priorities of the business units relevant to the impact investing thesis. Their buy-in is crucial to ensure their involvement in non-financial support for investees.

6. Brand and Communications:

>Ensure that impact investing efforts align with the company's brand and messaging, maintaining consistency and integrity in communication. Develop communication strategies to engage internal and external stakeholders.

External Stakeholders

1. External Network Organisations: Collaborate with external partners and organisations to identify opportunities and best practices in impact investing, leveraging networks for knowledge sharing and partnership development.

2. Academia: Engage with academic institutions for research, insights and expertise on impact investing, fostering innovation and thought leadership in the field.

3. Peers: Engage with other companies and corporate foundations to exchange or even initiate joint impact investing projects or initiatives, leveraging collective expertise and resources for greater impact.

4. Consultancies: Provide expertise and advisory services on impact investing strategy and implementation.

5. Incubators and Accelerators: Act as pipeline partners and identify potential investees in the social innovation ecosystem.

Step 4: Establish Structures

To ensure that the impact investing strategy is properly supported and fit for purpose, companies must put certain structures in place. This involves setting up favourable governance frameworks, assembling the right operational team and fostering strong connections with the company to leverage its expertise, networks and products.

>Establish Effective Governance: Position key stakeholders on the board, investment committee or advisory committee. C-level executives on the board can ensure continuous buy-in, while business unit representatives facilitate synergies with business priorities. Involving external stakeholders without a relationship with the company is also crucial to strike the right balance between business and impact considerations.

>Develop Necessary Expertise: Ensure that your team possesses the required skills, such as business assessment, financial instrument deployment and impact measurement and management. Assess whether these skills should be developed in-house or if leveraging existing corporate support functions would be more efficient.

>Foster Collaboration with the Business: Given the importance of going beyond financial support, cultivate relationships with corporate expertise, networks and products as necessary. Implement an employee engagement program to ensure that investees can leverage the company’s strengths from the outset.

Step 5: Invest!

Reaching step number five means that everything is in place to begin deploying impact investments. Managing impact investments is complex and many considerations depend on your approach. However, the following four responsibilities are commonly found in any impact investment strategy:

>Deal screening: Actively seeking investment opportunities that align with the investment strategy.

>Due Diligence: Thoroughly screening potential investments by analysing and validating a business plan.

>Investment Decision & Deal Structuring: Structuring investments to optimise financial returns while achieving impact goals.

>Investment Management: Diversifying and actively managing a portfolio of impact investments, including the management at the investee level.

Further reading: The Investing for Impact Toolkit , a practical guide to the investment journey, including tailored financing, non-financial support, impact measurement & management and exit.

The corporate impact actors we interviewed for How to do Corporate Impact Investing recommend some widely applicable maxims as well: start small, celebrate successes along the way, learn from any potential failure and gradually build a track record of impact. Over time, if impact investing efforts prove successful, it may lead to an increase in budget allocation, shifts in strategy and the emergence of synergies with the core business.

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This brief was excerpted from How to do Corporate Impact Investing. Read the full report to learn how impact investing can be a bridge between impact and business.