Nesta Impact Investments (NII) was one of the first investors in Europe to develop and grow the field of social impact investment. We believe it is important to show that commercial businesses can achieve social impact and that commercial investors do not have to have a trade-off between financial returns and social impact. Where social impact and commercial strategy are aligned, making a positive difference need not mean sacrificing financial performance.
This document sets out the latest iteration of our approach to growing and demonstrating impact. It covers all aspects of the investment lifecycle: from the decision to invest through to portfolio management and exit. The approach is based on experience from nearly five years of impact investing, learning lessons from where things have gone well and not so well, and using data from the 13 companies we have invested in over that time.
The framework presented here seeks to test many unproven assumptions. The questions we will be asking ourselves are set out in each section. As we pilot this new approach, we welcome thoughts from mission-led businesses, other impact investors and asset owners for how we can strengthen our approach.
We take a structured approach to assessing potential investments by considering risks to social impact (impact risks) alongside the estimated impact on people’s lives (impact returns) and then comparing the risk/return profile to our existing portfolio as a benchmark..
We break down impact returns into the number of people reached (scale) and the importance of this impact on their lives (depth). We choose to give more weight in our analysis to businesses achieving high depth, by reaching in-need populations or being highly effective, than we do those businesses having little impact at high scale. The challenge for a technology-dominated portfolio is to find those ideas that can dramatically change lives for those in need, rather than simply reach large numbers of people.
We remain committed to providing a high level of support to companies to identify, measure and articulate social impact and use this to enhance commercial success. We are embedding a new impact management cycle within our own processes to ensure that the data collected is both useful and used. Early-stage companies are too stretched and fragile to spend time collecting information that is not useful for their success.
We have a renewed focus on regularly monitoring data demonstrating the quality of products or services, as well as demonstrating over the longer term more rigorous evidence of impact. The businesses in our portfolio are scaling rapidly, thus it is essential to ensure that the quality required to deliver impact is being maintained. This requires feedback on short timescales, typically quarterly.
We aspire to meet our own standards as set out here and are embedding our own processes for learning and reflection. As part of this, we will undergo an impact audit and to invite feedback from our stakeholders.