Impact-Linked Finance Report: Does Incentivising Impact Work?

Click here to view the report.

Background

This study was commissioned by Esmée Fairbairn Foundation with a view to understanding more about impact-linked finance globally and exploring its implementation in the UK social/impact investment market. The key market-builder Roots of Impact, has created the following definition for impact-linked finance – ‘the linking of financial rewards for market-based organisations to the achievements of positive social outcomes.’ They underline three key design principles: i) incentives go to the value creator; ii) a focus on outcomes (rather than outputs); and iii) impact additionality meaning that the financial rewards should drive the organisations to deliver additional outcomes that would not have happened without these. Roots of Impact has primarily envisaged impact-linked finance as a subset of blended finance and for use in that context, where it can achieve both impact and financial additionality. This study has an investor focus, although it is recognised that a next step would be to develop more understanding of the demand from investees for this tool. The research consisted of a global review complemented by a UK review with qualitative interviews and a UK investor survey.

Illustrative examples of impact-linked finance transactions by complexity

Click here to view the report.