The Impact
Due Diligence Guide
Practical guidance for investors seeking to systematicallyassess investments’ anticipated impact
OCTOBER 2019

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 1

The Impact
Due Diligence Guide
Practical guidance for investors seeking to systematicallyassess investments’ anticipated impact

About the Author

The Pacific Community
Ventures Research Team:• Daniel Brett• Justin Fier
• Kristy Henrich• Jess Pedersen• Tom Woelfel
Reader comments and ideas
are welcome. Please direct
correspondence to:Daniel Brettdaniel.brett@pcvmail.org
Tom Woelfel
twoelfel@pcvmail.org

Pacific Community Ventures (PCV), a nonprofit social enterprise andcommunity development financial institution (CDFI) based in Oakland,
California, envisions a world of thriving communities where everyone
has a fair shake. Our mission is to invest in small businesses, create
good jobs for working people, and make markets work for social good.
We achieve our mission through a combination of fair lending, freementorship, skilled volunteerism, impact investing consulting services,and field-building research.
This guide was developed by PCV’s research and consulting team, whichleads projects intended to foster the growth and increase the efficacy of
the impact investing field. The team’s extensive experience developing
impact due diligence systems, both for PCV’s loan fund and several
consulting clients, has both inspired and informed this initiative. PCV’s
experience in impact due diligence formally began in 2014, when theorganization worked with Community Vision (formerly NCCLF) to develop
a quantitative social impact rating tool. Since then, PCV has partneredwith several other investors to develop formalized impact due diligenceapproaches, including BlueHub Capital, Community Housing Capital, andthe MacArthur Foundation.

Our Research Partners
The Impact Management Project (IMP) is a forum for building global
consensus on how to measure, manage and report impact. Since 2016,
the IMP has brought together a Practitioner Community of over 2,000
organizations to establish norms and share best practices. The IMP also
facilitates the IMP Structured Network, an unprecedented collaborationof standard-setting organizations who are coordinating efforts to provide
complete guidelines for impact measurement and management.
The Global Impact Investing Network (GIIN) is the global champion of
impact investing, dedicated to increasing its scale and effectivenessaround the world. By convening impact investors to facilitate knowledge
exchange, highlighting innovative investment approaches, building
the evidence base for the industry, and producing valuable tools andresources, the GIIN seeks to accelerate the industry’s development
through focused leadership and collective action. Ultimately, the GIIN
focuses on reducing barriers to impact investment so more investors
can allocate capital to fund solutions to the world’s most intractablechallenges. The GIIN does this by building critical infrastructure anddeveloping activities, education, and research that help accelerate thedevelopment of a coherent impact investing industry.

Acknowledgements
We would like to acknowledge the many partners and colleagues who
have provided extraordinary support to our work over the past two years.
We are deeply grateful for the financial support of the Heron Foundation
and Impact Management Project, without whom this research would not
be possible. Special thanks to our research partners Olivia Prentice andMike McCreless of the IMP and Kelly McCarthy and Leticia Emme of the
GIIN for their encouragement and guidance throughout the project, as
well as their leadership in advancing the practice of impact measurement
and management.
We would also like to thank our advisors, Karim Harji, Program Directorof the Oxford Impact Measurement Program, and independent consultant
Jane Reisman, who offered valuable support throughout this project.
Thanks to Belissa Rojas of IDB Invest, Christian Rahbek Rosenholm of
the International Finance Corporation, and Catherine Dun Rappaport of
BlueHub Capital for providing insightful feedback. Last, but not least, aspecial thanks to our interview subjects: the fund managers, foundations,development finance institutions, institutional investors, consultants,
and industry experts who helped us document lessons in effective
impact due diligence. For a full list of organizations that participatedin this project, see Appendix A.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 4

Navigating the Guide
WHO IS THIS GUIDE FOR?
This guide is intended for impact investing practitioners
seeking to enhance the likelihood of having a
positive impact by systematically assessing the
anticipated economic, social or environmental
effects of their investments.

WHAT DOES THE GUIDE CONTAIN?
This guide is comprised of two sections, each containingcase studies demonstrating how investors havesuccessfully developed and implemented processes
to assess anticipated impacts during due diligence.

THE GUIDE CONTAINS A LOT OF
INFORMATION. WHERE SHOULD I START?
Reading the guide from start to finish may beoverwhelming, particularly for those who are new
to IMM. For this reason, we visually differentiate
between sections focused on principles andprocesses, recognizing that readers may first wantto know what to do before how they could do it.
Content that is primarily related to guiding principles
is preceded by a light bulb icon, while sections
primarily containing technical or process-related
guidance is notated with a gear icon.

əə Developing Impact Due Diligence Approaches

This section contains practical guidance on
developing impact due diligence approaches,
including recommendations for both novices aswell as seasoned experts in impact measurement
and management (IMM). Investors should review
this section to determine which approach ismost appropriate for their organization and draw
upon recommendations to develop resources
and processes to evaluate expected impacts.
əə Implementing Impact Due Diligence Approaches

This section offers recommendations intended
to help investors operationalize a systematic
approach to impact due diligence within theirorganization. This includes guidance on integrating
impact due diligence into existing processes,
staffing, engaging with investees, informing
investment decision-making, and enabling more
rigorous post-investment evaluations.

PAC I F I C C O MMUNI T Y VE NTURES

Guiding Principles

Process GuidanceNote that while some sections contain both principles
and processes, they have been categorized bywhichever content predominates the section.

A NOTE TO THE READERThis guide intends to provide actionable advice toa diverse community of impact investors. While
the guide identifies best practice-informed
recommendations for investors seeking to develop
and implement approaches to systematically assess
anticipated impacts, each organization’s approachto impact due diligence will need to reflect its
unique priorities and constraints. For example,
investors’ impact themes, staffing model, internal
expertise, and asset class influences their ability
to accurately evaluate their investments’ expected
impacts. We hope that investors will use the portionsof this report that are most useful to them.

The Impact Due Diligence Guide 5

INTRODUCTION����������������������������������������������������� 09

Table of Contents

01

DEVELOPING A SYSTEMATIC APPROACH
TO IMPACT DUE DILIGENCE������������������������������������ 14
1.1 Winning Organizational Support�������������������������17
1.2 Developing Impact Goals�����������������������������������21
1.3 Identifying the Appropriate Approach to
Impact Due Diligence for Your Organization������� 27
1.4 Developing Narratives of Expected Impact �������� 28
1.5 Building an Impact-Focused
Due Diligence Questionnaire������������������������������31
1.6 Building a Quantitative Impact
Due Diligence Tool�������������������������������������������� 38

02

IMPLEMENTING A SYSTEMATIC APPROACH
TO IMPACT DUE DILIGENCE������������������������������������ 54
2.1 Integrating Impact Due Diligence
into Existing Processes ������������������������������������� 57
2.2 Staffing Impact Due Diligence ��������������������������� 61
2.3 Using Impact Due Diligence toStrengthen Relationships with Investees ����������� 67
2.4 Using Impact Due Diligence toInform Decision-Making�������������������������������������71
2.5 Using Impact Due Diligence to Inform
Post-Investment Evaluations of Impact ������������� 79

CONCLUSION��������������������������������������������������������� 81

Table of Contents

APPENDIX
A

Research Methodology ������������������������������������� 82

B

Data Resources ������������������������������������������������86

C

Questions to Guide Ongoing Refinementof Approaches to Impact Due Diligence�������������88

D

Commonly Used Impact
Due Diligence Questions���������������������������������� 90

E

Glossary of Terms��������������������������������������������� 93

F

Resources Reviewed�����������������������������������������94

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 8

Introduction

While impact measurement and management (IMM) has become increasingly
sophisticated and widespread in recent years, most investors focus primarily on
what happens after, not before, investments are made.
To be sure, some leading investors are employing
systematic approaches to examine impact prior tocommitting capital, but utilizing IMM during due
diligence remains an underdeveloped practice.

This second report, The Impact Due Diligence
Guide, offers detailed recommendations regarding
the design and implementation of impact due
diligence approaches.

In response, PCV launched the impact due diligence
initiative in partnership with the Impact Management
Project (IMP) and with research support from the
Global Impact Investing Network (GIIN). The objectiveof this project was to assess emerging best practices
in impact due diligence as well as develop practicalguidance for investors across asset classes andimpact areas.

Findings and recommendations included in these tworeports have been informed by extensive desk researchon emerging best practices in impact due diligence;
interviews with leading practitioners, researchers andconsultants; the PCV team’s experience developing
impact due diligence systems for clients and for PCV’sloan fund; and discussions at numerous conferences
and industry convenings. See Appendix A for details
on our research methodology.

The first of two reports, Impact Due Diligence:
Emerging Best Practices, was published in Julyof 2019 and surfaced the common impact due
diligence approaches and practices employed byindustry leaders.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 9

Defining Impact Due Diligence
Assessing impact during due diligence, which we broadly define as
all aspects of the investment process that occur before making an
investment, is essential to effective impact investing. Not only does
impact due diligence enhance investors’ capacity to make more
informed investment decisions and increase the impact of theirportfolios: it also helps safeguard the entire field against “impact
washing” as the market grows.
The research team’s market scan revealed that most approaches
to impact due diligence fall within three categories: narratives of
expected impact, due diligence questionnaires, and quantitative
tools. These archetypes are not mutually exclusive, as many
investors employ two or all three approaches.

NARRATIVES OF EXPECTED IMPACT

WHAT ISANTICIPATED IMPACT?
When we refer to assessing expectedor anticipated impact, which is usedinterchangeably throughout thisreport, we are not only referring to theprojected impacts of an investment.
This is, in fact, only one componentof an evaluation of expected impacts.
Instead, assessing anticipated impacts
encompasses an examination ofpotential investees’ current impact,
forecasted impact over the life of theinvestment, as well as current andexpected impact risks.

Written descriptions of anticipated impact enable investors toconsistently document their impact-related expectations. Typicallyappearing as a paragraph in an investment memorandum, narrativesof expected impact are often the first formalized approach investors
employ to evaluate impact expectations. While using this method
alone lacks the standardization of an impact-focused due diligencequestionnaire or systemized due diligence tool, narratives of
expected impact can allow investors to develop an understandingof the types of questions and information that should be collectedusing questionnaires and quantitative tools.

DUE DILIGENCE QUESTIONNAIRES
Impact-focused due diligence questionnaires (DDQ) are sets ofquestions about prospective investees’ impact that usually all
potential investees are required to answer. Impact DDQs can be
standalone documents or integrated into ‘traditional’ DDQs thatassess an investment's expected financial risk and return. Impact
DDQs allow investors to implement a consistent approach to impact
due diligence and are typically used to gain a holistic understandingof a potential investee’s objectives, anticipated impacts, uniquecharacteristics and applicable risks. These primarily qualitative
assessments can be utilized to gain a nuanced understanding ofprospective investees’ anticipated impact.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 10

Quantitative impact
due diligence tools
produce expected
impact scores thatcan be used to inform
investment decisions.

QUANTITATIVE TOOLS
Quantitative tools help investors translate both qualitative andquantitative information about prospective investees into standardized,
numeric scores that can be more easily compared across a portfolio as
well as all prospective investment opportunities. To develop quantitative
impact due diligence tools, investors select relevant indicators basedon their investment strategy and impact themes, relying on the IRIS+
taxonomy of investment themes, IRIS+ metrics and Core Metrics Sets
where possible, and develop scoring guidelines to inform the assessment.
Each indicator is then assigned a weight to ensure the tool reflects
the investor’s priorities. Quantitative due diligence tools then produce
expected impact scores that can be used to inform investment decisions.
Implementing new systems or processes—including formal impact due
diligence—can require significant time and resources, so it is importantfor investors to choose the most appropriate approach given their internal
capacity and priorities. For guidance on which approach to first explore,
readers should refer to the following section in this guide: Identifying theAppropriate Approach to Impact Due Diligence for your Organization.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 11

EMERGING AREAS OF BEST PRACTICE
Impact due diligence is an emerging area of practice, as most impact investors do not yet have formalized
approaches to assessing anticipated impacts. Still, interviews with leading practitioners revealed
seven areas of best practice that should be widely adopted by the impact investing industry.
These emerging best practices, which are described in detail in our companion report, were incorporated
wherever they are relevant throughout the recommendations contained within this guide.

ASSESSING IMPACT
USING THE
FIVE DIMENSIONSALIGNING WITH
THE SUSTAINABLE
DEVELOPMENT GOALSELEVATING THEPERSPECTIVES OF
KEY STAKEHOLDERSADOPTING A PORTFOLIOWIDE APPROACH

PAC I F I C C O MMUNI T Y VE NTURES

BRIDGING THE DIVIDEBETWEEN ESG AND IMPACTASSESSMENTS

EVALUATING ACOMMITMENT TO
IMPACT AND LEARNINGPRIORITIZINGACCESSIBILITY

The Impact Due Diligence Guide 12

1Assessing Impact Using the Five Dimensions:
The Impact Management Project (IMP) is a useful
and widely accepted set of norms for understanding
and assessing impact. Investors should check theirapproaches against the five dimensions of impact toensure they are comprehensively assessing expected
impacts on people and the planet.

2

Bridging the Divide Between ESG and Impact
Assessments: When assessing anticipatedimpact, investors should ensure they are evaluating
all impacts an enterprise has that matter to people
and planet including those related to business
operations (i.e., ESG considerations) as well as
products or services. In this way, investors canevaluate all impacts that matter–not just theintended positive ones.

3

Aligning with the Sustainable Development
Goals: Since the Sustainable Development Goals(SDGs) were released by the United Nations Assemblyin 2015, investors have used these 17 goals as ameans of articulating the connections between theirinvestments’ impacts and the United Nation’s global
development agenda. Incorporating the SDGs into
impact due diligence helps ensure that prospective
investments’ anticipated impacts align with the global
development agenda, as well as enable effective
communication about expected impact across adiverse portfolio. This best practice is most appropriate
for investors whose strategies are intentionallydesigned to contribute to the SDGs or whose objectives
have significant overlap with the global goals.

4

Elevating the Perspectives of Key Stakeholders:
Incorporating the perspectives of those whoare impacted by investees helps investors betteralign on impact goals, mitigate impact risk, amplify
stakeholder voices, develop feedback loops between
investors and investees, and assess both investor
and investee contribution.

PAC I F I C C O MMUNI T Y VE NTURES

5

Evaluating a Commitment to Impact andLearning: Investors should explicitly assess
investees’ commitment to achieving impact as well as
their ability to improve, adapt, and learn. Specifically,
investors should evaluate whether investees’ impact
thesis is clearly defined, their understanding of key
stakeholders’ needs, the robustness of their IMM
systems, whether they have financial incentives
linked to impact performance, and their ability tochange strategies and tactics based on results.

6

Adopting a Portfolio-Wide Approach:
Investors should develop a consistentimpact due diligence approach that enables directcomparisons of different types of investments
across a portfolio. This is an essential componentof effective, impact-driven portfolio management.
Sector-specific questions and indicators are in somecases necessary to achieve a sufficient level of rigor
in impact due diligence, particularly for those withdiverse portfolios. However, investors should adopt
sector-agnostic frameworks and generalizable
questions and indicators, where possible, to ensure
impact due diligence processes are more easily
implementable and results are comparable.

7

Prioritizing Accessibility: To ensure that theirimpact due diligence approaches can be easily
adopted, investors should use consistent language,
appropriately balance rigor and efficiency, andseek to understand the expectations of internal andexternal audiences. While new impact due diligencesystems will take time for staff to learn, investors
should strive to build ones that are not burdensome
to facilitate adoption. This will encourage investor
and investee relationship-building and set internal
stakeholders up for success in performing theirimpact due diligence-related roles.

The Impact Due Diligence Guide 13

DEVELOPING ASYSTEMATIC APPROACH to
IMPACT DUE DILIGENCE
Winning Organizational Support
Developing Impact Goals

Identifying the Appropriate Impact Due Dilligence Approach
Developing Narratives of Expected Impact
Building an Impact-Focused Due Dilligence Questionnaire
Builidng a Quantitative Impact Due Diligence Tool

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 14

Winning
Organizational Support

Developing
Impact Goals

Identifying theAppropriate Approachto Impact Due Diligencefor your Organization

1.1

1.2

1.3

Developing Narrativesof Expected Impact

Building an
Impact-Focused Due
Diligence Questionnaire

Building a
Quantitative Impact
Due Diligence Tool

1.4

1.5

1.6

Readers seeking to champion impact due diligence initiatives can download
this progress tracker to monitor and review their ongoing progress as they
develop a systematic approach to assessing investments' anticipated impact.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 15

Winning Organizational Support

1.1

For many investors, the first step to developing internal buy-in is educating key
stakeholders across the organization about what impact due diligence is andwhy it’s important.
The concept of systematic impact due diligence is still
relatively new to most organizations, and champions ofimpact due diligence initiatives have found that educatinginternal stakeholders was one of their biggest challenges. Those
responsible for developing impact due diligence approaches foundit useful to share the following resources with their colleagues:
əə Examples of impact due diligence tools and processes(including mock-ups of the tools, where available)

STAKEHOLDER (Definition)
Persons or groups directly or indirectly
affected by an intervention, including
those who may have stakes in a project
and/or the ability to influence its
outcome, either positively or negatively.

əə Value to the organization and investees (for more information,

see the companion report: Impact Due Diligence: Emerging
Best Practices)əə Proposed process for developing the impact due

diligence approachəə Expected costs associated with development and use
əə Expected staffing implications, including incentives andperformance reviews related to pre- and post-investment
impact performance

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 17

WI NNI NG O RGA NI Z AT I O NA L S U P P O RT

D E V ELOPING A SYST E M AT I C A PPROAC H TO I M PACT D U E DI L I G E N C E

WI NNI NG O RGA NI Z AT I O NA L S U P P O RT

CASE STUDY

Calvert Impact
Capital: Winning
Organizational
SupportPAC I F I C C O MMUNI T Y VE NTURESCALVERT IMPACT CAPITAL IS A NONPROFIT INVESTMENT FIRM
THAT DEPLOYS CAPITAL TO APPROXIMATELY 100 MISSION-DRIVEN
ORGANIZATIONS WORLDWIDE, INCLUDING INTERMEDIARIES,FUNDS, AND PROJECTS.
Individuals and institutions invest in Calvert through their Community
Investment Notes. When developing their impact due diligence approach,Calvert’s impact team worked to garner widespread organizational support for
the effort. Calvert engaged investment officers early on, soliciting feedback on
specific sections of the impact due diligence tool and showing them how thetool would benefit them once implemented. Champions of the project wereable to win buy-in from management by creating an internal advisory group,
which allowed those involved in setting organization-wide strategy to provide
inputs to ensure that the tool was developed in line with the organization’s
strategic objectives. By including both staff who interact directly withinvestees as well as senior leadership, Calvert achieved early buy-in from all
key stakeholders to develop a more robust impact due diligence approach.

The Impact Due Diligence Guide 18

PAC I F I C C O MMUNI T Y VE NTURES

Champions can help assuage staff’s concerns by
sharing the following perspectives:
əə Codifying the organization’s methods for evaluating

expected impact will enable investment staff
to more efficiently evaluate anticipated impact
moving forward, and more quickly train newinvestment staff to understand the characteristics
of more or less impactful deals.
əə While developing a formal impact due diligenceapproach requires an upfront investment of staff
time, efficiency gains will be achieved in eachstage of the investment process, including when
preparing investment memos, communicatingwith the investment committee, and making
investment decisions.
əə Impact due diligence may enable them to makeinvestments with higher expected impact than
average, but which would have previously been
screened out due to higher financial risk.

The Impact Due Diligence Guide 19

WI NNI NG O RGA NI Z AT I O NA L S U P P O RT

As with any initiative focused onorganizational change, champions ofimpact due diligence projects should
first speak with colleagues who are most likely
to be supportive of this work and are able to help
garner additional support. In some cases, this will
be investment staff, while in others, management
will be the strongest ally. For example, investment
staff may be excited about the possibility of more
effectively evaluating higher impact investments,
while management could be concerned about the
impact of changes to due diligence on the pipelineand deal flow. Conversely, investment staff might beconcerned that implementing impact due diligence
will negatively affect their workflow or constrain
their ability to do deals, while management may be
excited about codifying expected impact to makebetter investment decisions.

Developing Impact Goals

Developing concrete impact goals is critical to effective impact management
and is essential to building impact due diligence approaches—whether
qualitative or quantitative.
After garnering organizational support,
investors should begin by aligning on theirown intended impacts—if they have notalready done so. Clear impact goals will lay thefoundation for the development of their impact due
diligence approach. There are several formats for

documenting and visualizing impact goals, including
logic models and theories of change (see the Glossary
for definitions). Even if an investor does not build
a logic model or theory of change, they should
document their impact objectives and how they
expect to contribute to them.

OVERVIEW OF A LOGIC MODELINPUTS
Resources thatare deployed inservice of a certain
set of activities

ACTIVITIESActions that are
performed insupport of specificimpact objectives

OUTPUTSOUTCOMES

Tangible, immediate
practices, products
and services that
result from theactivities that areundertaken

Changes, or effects,
on individuals or theenvironment that
follow from thedelivery of products
and services

IMPACTS
Changes, or effects,
on society or theenvironment that follow
from outcomes thathave been achieved

Adapted from Measuring Impact: Subject Paper of the Impact Measurement
Working Group of the GB Social Impact Investment Taskforce, 2014.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 21

D E V E LO P I NG I M PAC T GOA L S

1.2

D E V ELOPING A SYST E M AT I C A PPROAC H TO I M PACT D U E DI L I G E N C E

By aligning on their intended impacts prior to developing their impact
due diligence approach, investors can develop a deeper understandingof their impacts on key stakeholders and build internal consensus on the
purpose of their activities—and very existence.
Develop a Deeper Understanding of their Impacts on Key Stakeholders
To develop an understanding of investments’ anticipated impact, it isessential for investors to engage their key stakeholders to understandhow their investment may affect them. This should be documented inlogic models or theories of change or outcome maps. Investors should
solicit input from intended beneficiaries—or those with the closest
relationships with them, which in many cases are existing investees—
to understand how they are affected by the investor’s activities. Throughthis approach, investors are better positioned to identify the outputs,
outcomes, and/or impacts of their investment activities, which isessential to developing a robust impact due diligence approach.
For more detail on elevating the perspectives of key stakeholders,see Impact Due Diligence: Emerging Best Practices.
Developing Consensus
The process of codifying intended impacts can help investors ensurethat all internal stakeholders are aligned on their impact goals.
This is particularly useful, given that investment staff may have diverse
views and assumptions about their firm’s impact, even if all agree on
the investor’s mission. For example, while all staff may agree that theinvestor should be creating opportunities for those at the base of the
pyramid, staff may have differing opinions about which opportunities
are most important, and for which demographic groups. Impact goals
can also be used with potential investees to establish alignment aroundshared objectives as part of impact due diligence, and are describedfurther in Impact Due Diligence: Emerging Best Practices.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 22

D E V E LO P I NG I M PAC T GOA L S

The process ofcodifying intended
impacts can help
investors ensurethat all internal
stakeholders arealigned on theirimpact goals.

VALUE OF ARTICULATING AND CODIFYING INTENDED IMPACTS

əə Understand the impact goals they are

seeking to achieveəə Refer to the IMP’s five dimensions of impact(what, who, how much, contribution, and risk)
to ensure their impact goals are sufficiently
comprehensive. For additional information on
using the five dimensions within due diligence,
please refer to our companion report on impact
due diligence best practices as well as theIMP’s website.
əə Identify how they will support or generate this

impact as an investor
əə Describe how they expect investees to achieveintended impact
əə Document anticipated stakeholders whowill be impacted
əə Examine possible unintended outcomes

Toniic’s Developing an Investment Strategy offers
guidance on how to articulate impact goals and build
out a corresponding theory of change, including
examples and external case studies. CERISE alsooffers the CERISE-IDIA, an impact-driven investor
assessment, which helps investors assess five
key areas that are critical to operationalizing theirimpact strategy. The Excel-based tool assesses thealignment of an investor’s processes with its impact
goals along the following categories: impact thesis,
governance, products and procedures, businessmodel, and data protocols.
Organization- or portfolio-wide impact goals, codified
through an impact thesis, logic model, or theory ofchange, can then be used to develop transactionlevel impact goals. The IMP’s emerging consensus
on impact goals recommends the following:əə Define the expected experience of impact

across the five dimensions, including the Risk
the investor is willing to take that the effect isdifferent than their expectation
əə Judge whether the effects that people andplanet experience by engaging with the delivery
model(s) are significant and how they likely
contribute to theməə Set goals to prevent negative effects that theyjudge to be significant, which their contribution
is making either worse or not any betterəə Decide, based on their intentions, constraints, andfinancial goals, whether to set goals to increase
positive effects that are significant and which theircontribution is likely to make even better

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 23

D E V E LO P I NG I M PAC T GOA L S

Undertaking the following steps will
ensure investors form a solid foundation
to guide the development of an impact
due diligence approach. Investors should:

IMPACT GOALS SHOULD
BE CONTINUOUSLY
REFINED

A. Act to avoid harm: e.g., an ethical bond fundB. Benefit stakeholders: e.g., a positively-screened
best-in-class ESG fundC. Contribute to solutions: e.g., a private equity fund making
anchor investments in businesses that have a significant
effect on income and employment for underserved people
See the IMP’s Guide to Classifying the Impact of an Investment
for detailed information on how to apply the ABC framework to
the goal-setting process.

PAC I F I C C O MMUNI T Y VE NTURES

Investors need to develop well-defined
impact theses and goals to develop
effective impact due diligenceapproaches. However, they should becontinually working to understand theimpact of their investments, should
question the assumptions in theirinvestment and impact theses, andrevise their goals based on available
evidence and lessons learned frominvestment performance.

The Impact Due Diligence Guide 24

D E V E LO P I NG I M PAC T GOA L S

As part of their guidance on setting impact goals, the IMP has also
developed the ABC framework that describes how investors may
contribute to impact through their investments in enterprises/
assets as part of their portfolio:

D E V E LO P I NG I M PAC T GOA L S

CASE STUDY

Gary Community
Investments:
Developing
Impact Goals

GARY COMMUNITY INVESTMENTS (GCI), WHICH INCLUDES THE GARYCOMMUNITY INVESTMENT COMPANY AND THE PITON FOUNDATION,INVESTS IN FOR-PROFIT AND PHILANTHROPIC SOLUTIONS FOR
COLORADO’S LOW-INCOME CHILDREN AND THEIR FAMILIES.
In addition to developing a theory of change, GCI developed theoriesof impact for each of the four outcome areas in its theory of change.
The theory of impact framework is used to evaluate portfolio-level performance,
help understand the investments and activities that are contributing todesired outcomes, as well as determine where course correction is needed.
Used alongside its theory of impact framework is GCI’s Transformational
Impact Grid (TIGR), an impact due diligence tool that helps them invest
resources into highly effective organizations that are creating transformative
impact. The TIGR along with GCI’s Impact Management Plans are used toevaluate new opportunities, clarify expectations for investment results
and report on progress.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 25

Identifying the Appropriate
Approach to Impact Due
Diligence for Your Organization

1.3

The table below outlines considerations for investors as they determine which approach to impact
due diligence is right for their organization. Impact due diligence should be a continuous process ofimprovement, too. If an investor starts with an impact due diligence questionnaire, they should plan
to revisit their process and consider whether developing a quantitative impact due diligence tool, which increases
the rigor of assessing expected impact, would be appropriate.

APPROACH

THIS APPROACH IS BEST FOR INVESTORS WHO...

NARRATIVES OF
EXPECTED IMPACTəə Want to adopt a consistent approach to impact due diligence and document expected impact

IMPACT-FOCUSEDDUE DILIGENCEQUESTIONNAIRE

əə Are interested in developing a deeper, more systematic approach to understanding anticipated impact

əə Lack the capacity to build or implement a due diligence questionnaire or a quantitative tooləə Have the capacity to ask each investee a standard list of questions, and revise their questions
accordingly to assess impact
əə Have sufficient organizational buy-in to use the responses to inform decision-making

QUANTITATIVE IMPACTDUE DILIGENCE TOOLəə Are interested in systematically comparing quantitative assessments of anticipated impact
across a portfolio
əə Manage, or expect to manage, a portfolio of at least twenty investments
əə Have the capacity to thoughtfully develop, methodically test, systematically implement, andcontinuously refine their tooləə Have a project lead who can dedicate at least five hours weekly for four to twelve months to thedesign and implementation of the tooləə Have sufficient organizational buy-in to use the scores produced by their tool to inform
decision-making
əə Would like to understand their portfolio’s aggregate level of anticipated impact over timeəə Are interested in developing a deeper understanding of the strongest predictors of impact over time

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IDENTIFYING THE APPROPRIATE APPROACH TO IMPACT DUE DILIGENCE FOR YOUR ORGANIZATIOND E V ELOPING A SYST E M AT I C A PPROAC H TO I M PACT D U E DI L I G E N C E

Developing Narrativesof Expected Impact

1.4

As an entry point into impact due diligence, impact investors should begin
by articulating the anticipated impact of their investments in a narrativedescription, in alignment with the five dimensions.
Relying on intuition or ad hoc analyses ofimpact alone is inadequate for addressing
impact as part of the investment process.
While preparing written descriptions of expected
impact lacks the standardization of a due diligencequestionnaire or quantitative tool, they allow
investors to begin understanding their prospective
investees’ anticipated impact in alignment withindustry conventions.

PAC I F I C C O MMUNI T Y VE NTURES

To develop a narrative of expected impact,
ask investment staff to write an overview
of the impact they expect to see for theinvestee according to each of the five dimensions.
These are typically included within an investment
memorandum alongside information about thefinancial viability of the investment. By framing
narratives of expected impact around the collective
norms of the IMP, participants will at minimum beconsistent with field-wide consensus around thedefinition of impact and how it can be a part ofdecision-making. As investors increase theircapacity to implement more rigorous impact due
diligence, preparing written summaries of expected
impact will set the stage for the development of
their questionnaires or quantitative impact due
diligence tools.

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D E V E LO P I N G N A R R AT I V E S O F E X P E C T E D I M PA C T

D E V ELOPING A SYST E M AT I C A PPROAC H TO I M PACT D U E DI L I G E N C E

PAC I F I C C O MMUNI T Y VE NTURES

Accompanying
narrative is criticalto comprehensively
communicating
the prospective
investee's
anticipated impact.

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D E V E LO P I N G N A R R AT I V E S O F E X P E C T E D I M PA C T

It is important to note that investors should continue preparing
narratives of expected impact even after they have developed
impact-focused questionnaires or quantitative tools. Manyinterviewed investors were adamant that, even where quantitative impact
due diligence assessments are available, an accompanying narrative iscritical to comprehensively communicating the prospective investee’s
anticipated impact and the capital’s role in supporting that impact. When
preparing investment memos, investors should synthesize their impact
due diligence analysis into a narrative of expected impact explaining thepotential investee’s approach to impact, anticipated impact, uniqueconsiderations and applicable risks.

1.5

D E V ELOPING A SYST E M AT I C A PPROAC H TO I M PACT D U E DI L I G E N C E

Building an Impact-Focused
Due Diligence Questionnaire

PROCESS FOR DEVELOPING A DDQ
Investors develop due diligence questionnaires by:

CLARIFYINGIMPACT PRIORITIESASKINGQUESTIONSITERATING ON THE
LIST OF QUESTIONSClarifying their impact priorities
and approach by soliciting
feedback around the impactof the current portfolio

Identifying relevant questions
to ask potential investees

Iterating on the list of questions
to streamline, standardize,and ensure coverage acrossthe five dimensions of impact

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Impact-focused due diligence questionnaires (DDQs), which include a consistent set of questions askedof potential investees, help investors understand how the potential investee intends to generate their
expected impact, which enables them to assess the expected impact of the investment. The size andrigor of the DDQ should reflect the breadth and depth of the investor’s impact goals as well as their capacity andtolerance for impact risk, i.e., the likelihood that expected impact will not occur.

McConnell
Foundation:
Building a
Due Diligence
Questionnaire

PAC I F I C C O MMUNI T Y VE NTURESB UIL D IN G A N I M PAC T-FO C US E D D U E D I L I GE NC E Q U E S T I O NNA I R E

CASE STUDY

THE MCCONNELL FOUNDATION MAKES GRANTS, INVESTS,BUILDS CAPACITY, AND CONVENES TO PROMOTE THE CREATIONOF INNOVATIVE SOLUTIONS TO SOCIAL, CULTURAL, ECONOMIC,
AND ENVIRONMENTAL CHALLENGES.
For McConnell’s impact investments, they have developed a robust due
diligence guide, including due diligence questions that assess strategic
fit of the investment. This includes an evaluation of the investee’s value
proposition, organizational capacity, additional risks, sustainability
standards, and deal structure. This guide has helped them comprehensively
understand the expected impact of potential investments and ensure
mission-alignment with their organization prior to making investments.

The Impact Due Diligence Guide 32

To develop a due diligence questionnaire,
investors must build internal consensus
around their targeted impacts, how they prioritizethese impacts, and approach to achieving them.
As detailed in this guide, developing impact goals
can help investors develop consensus around, andclarify, their intended impact. Therefore, investors
should revisit these foundational documents prior todeveloping a DDQ focused on anticipated impact.
Investors can clarify how their organization’s impact
priorities and investment approach translate toconcrete characteristics of high-impact investments
by soliciting feedback from staff with the following
questions: “Which investments in the current portfolio
do you consider most and least impactful? Why?”

PAC I F I C C O MMUNI T Y VE NTURES

By answering these questions, investment staff cansurface aspects of positively impactful investments
and companies that may not have been explicitly
named as a priority to the investor, but which
represent a material effect that should be assessed
when considering the anticipated impact of aninvestment. For example, an investor may identify
that investees whose projects are related to acommunity or city-wide economic development
initiative are more likely, all else equal, to achieve
impact, even if supporting community or city-wide
development plans is not an explicit priority forthe investor. Additionally, completing this exercise
can give investors confidence that they havecomprehensively identified the key impacts createdby their portfolio—both positive and negative—aswell as the most salient characteristics of high- andlow-impact deals.

The Impact Due Diligence Guide 33

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CLARIFYING IMPACT PRIORITIESBlueHub Capital:
Clarifying Impact
Priorities

BLUEHUB CAPITAL, FORMERLY KNOWN AS BOSTON COMMUNITYCAPITAL, IS A NATIONAL NONPROFIT CDFI DEDICATED TO
BUILDING HEALTHY COMMUNITIES WHERE LOW-INCOMEPEOPLE LIVE AND WORK.
BlueHub provides financing for affordable housing; education, healthcare,and other community facilities; commercial real estate in economically
distressed neighborhoods; solar energy that benefits low-income families;
and foreclosure prevention. To inform the development of its quantitative
impact due diligence tool, BlueHub’s Vice President of Learning and Impact
Measurement partnered with loan officers to develop a scoring rubric
that reflected the lending team’s goals for supporting impactful loans.
Based on this work, she and the lenders identified “who and where,” or thecharacteristics of intended beneficiaries and the places where borrowers
operate, as important areas to prioritize within their impact due diligence tool.

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CASE STUDYASKING QUESTIONSInvestors ask questions of the investees—
and ideally their intended beneficiaries,
directly—to understand how investees’ businesspractices and products or services effect people
and the planet. Questions generally fall into threefocus areas:

INVESTORINVESTEE

EXAMPLE QUESTIONSInvestee/investor impact
goal alignment; ability of
the investor to support
the investeeəə How well does the potential investeealign with the investor’s impact goals?

Understanding theinvestee’s business practices
and products or services,
its expected impact, how
the investee assesses theirimpact, and the investee’sbusiness modeləə What problem is the investee
trying to solve, and what is their
proposed solution?

EXAMPLE OF INVESTORSEMPLOYING THIS APPROACHəə McConnell Foundation

əə How, if at all, can the investor support,
improve, or scale the investee’s workwith financial and non-financial capital?

əə What impact does the investee expect
to happen by providing this product orservice, both positive and negative?

əə McConnell Foundation
əə Acumen Fundəə HIP Investor

əə How does the investee measure this
impact? What, if any, measurement
system is in place?
əə What business plan does the investee
have to reach its objectives? Is impact
integrated into their business model?

BENEFICIARY

Beneficiary experience
using the product or service

əə What was your experience withthe product or service, both positive
and negative?

əə Charities Aid Foundation
əə Acumen Fundəə What, if any, changes did you
experience as a result of the productor service, both positive and negative?
əə What would you do without thisproduct or service?

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FOCUS AREAS

Developing impact due diligenceapproaches, including questionnaires, requires
multiple iterations over time to balance rigor andefficiency. There are a few key factors to consider
when refining the list of questions:əə Update and pare down the list to reducethe burden on the investee (and investor):
Assessing impact is an inherently complex
activity, but investors should work to simplify
their approach where possible. For example,
investors can ask the investee what indicators
they already report on to articulate the impactof the offered product or service. Also, minimize
duplication of efforts; for example, seek out
opportunities to leverage existing informationfrom the financial due diligence process, thecollection of contextual information, and/or
publicly available datasets.
əə Ensure applicability across the portfolio:

Seek to understand how a group of more
specific questions could be combined into asingle higher-level question that asks for thesame piece of information across investees.
(For example, rather than ask separate
questions about the availability of affordable
housing, quality education and employment
opportunities, an investor could instead ask, “towhat extent does this community have accessto opportunities?” and subsequently collecthousing, education and employment-related
data to answer the higher-level question.)
This will reduce the burden on investment staff,
facilitate the adoption of the impact due diligenceapproach, and ensure that a systematizedapproach is implemented across all investments.

PAC I F I C C O MMUNI T Y VE NTURES

For further guidance, please see the section on
adopting a portfolio-wide approach to impact due
diligence within our companion report, Impact
Due Diligence: Emerging Best Practices.
əə Strive for coverage across the five dimensionsof impact: It is important to ensure that the
final set of questions assesses impact across thefive dimensions; developing coverage across all
dimensions will likely require some refinementof the question set. Investors should strive toincorporate questions corresponding to thedimensions often cited as more challenging toassess: Contribution and Risk.
əə Leverage IRIS+ guidance: Investors should

review IRIS+ guidance, including resourceson the evidence linking strategic goals tooutcomes as well as Core Metrics Sets related
to their strategic goals, to develop due diligencequestions. By reviewing relevant IRIS+ Core
Metrics Sets and IRIS metrics and translatingthem into due diligence questions, investors
foster standardization in impact due diligence,
enable comparability of investments, andharmonize pre- and post-investment IMM
approaches. For additional guidance, see the
GIIN’s Using IRIS+ within Due Diligence.
To understand the expected impact of the potential
investee, systematize their due diligence approach, andenable coverage across the five dimensions, investors
should at minimum implement an impact-focused
due diligence questionnaire. Doing so will serve as thefoundation for developing a more rigorous approachto impact due diligence: a quantitative tool.

The Impact Due Diligence Guide 36

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ITERATING ON THE
LIST OF QUESTIONSPAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 37

Building a Quantitative
Impact Due Diligence Tool

1.6

Quantitative impact due diligence tools use consistent scoring guidelines
to synthesize qualitative and quantitative information into standardized
scores, which allow investors to systematically compare anticipated impact acrossprospective investment opportunities.
To be effective, quantitative due diligence tools
must be:əə Reliable: Based on credible evidence regarding thelink between investments and desired outcomes.
əə Standardized: Can be used to compare different

types of investments and across time.
əə Consistent: Consistently applied with the same

criteria across a portfolio.

(See the Adopting a Portfolio-Wide Approach andPrioritizing Accessibility sections of Impact Due
Diligence: Emerging Best Practices for more details.)
This section provides guidance on the types ofinvestors for whom a quantitative impact due
diligence tool will be most useful and outlines
the process for developing one that meets theabove criteria.

əə Flexible: Accommodates different types ofinvestments and can be applied across sectors
and impact themes.
əə Accessible: Easy to understand by staff andkey stakeholders.

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D E V ELOPING A SYST E M AT I C A PPROAC H TO I M PACT D U E DI L I G E N C E

PROCESS FOR DEVELOPING A QUANTITATIVE IMPACT DUE DILIGENCE TOOL

CLARIFY OBJECTIVESIDENTIFY STRUCTURE

Clarifying the organization's
impact objectives, approach to
impact, and priorities

Identifying a structure
and indicators to guidethe assessment

BUILD TOOLASSIGN WEIGHTSDRAFT SCORINGGUIDELINES

Building the impact
due diligence tool

Assigning weights toeach indicator

Drafting scoring guidelines
for each indicator

PAC I F I C C O MMUNI T Y VE NTURESTEST AND REFINEBUILD DATASET

Drafting scoring guidelines
for each indicator

Building an investment
portfolio dataset to benchmark
investment scores

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Developing an impact due diligence tool should be divided into
seven discrete phases of work, with each phase building on the prior one:

Since quantitative impact due diligence tools ascribe
value to investees’ characteristics and activities,
investors must first clarify their impact goals, theirapproach to achieving these impacts, and theirprioritization of intended impacts. For guidancein this area, please see the section on developing
impact goals.

IDENTIFYING AN APPROPRIATESTRUCTURE AND SET OF INDICATORSTO GUIDE THE ASSESSMENT
Investors should begin by identifying an overarching
structure to organize the information collected during
impact due diligence. Investors should strive for aconsistent approach that can be applied portfoliowide (see section 6 within the emerging bestpractices report) and should consider the following:əə Stakeholder groups (e.g., investees, customers,

communities, ecosystems)
əə Types of impact (e.g., environmental, social)əə Types of processes or practices (e.g.,defining and monitoring social goals; board/
management/employee commitment tosocial goals, responsible treatment of clients,
responsible treatment of employees, andbalance of financial and social performance)
We recommend using stakeholder groups, or the Who
impact dimension, as the overarching organizing
structure, as we have found it easier to ensure thatthe indicators and questions pertaining to eachstakeholder group are mutually exclusive. Indicatorsand questions, in our experience, tend to be morechallenging to categorize when using type of impact
or type of process/practice.

PAC I F I C C O MMUNI T Y VE NTURES

For example, an investor may seek to support economic
development and social justice, two interrelated
impact objectives. Using them as categories withina quantitative tool would make it challenging—and
potentially arbitrary—to justify the assignment ofquestions and indicators. Instead, an investor could
assess to what extent they advanced these goals via
the expected effects on their key stakeholders.
After aligning on an overarching structure to guidetheir assessment, investors should identify indicatorsthat align with the investment characteristics theywould like to evaluate. When selecting indicators,
investors should:əə Include a mix of indicators that rely on quantitativeand qualitative information (e.g., PCV’s tool
includes a “Number of Employees” indicatorthat is based on quantitative data while the‟Willingness to Engage with PCV to Improve Job
Quality” is based on a qualitative assessment)əə Ensure the indicators are based on information

they will be able to realistically collect during
due diligence, considering relevance to theinvestee’s stakeholders and business model,
and data quality. (e.g., while understanding thedemographics of customers may not be possible
during due diligence, it can be assessed postinvestment. As a proxy, investors may wish toassess the demographics of the areas where
potential investees operate.)əə Strive to minimize complexity by selecting

indicators that will be applicable across thefull array of investments, draw from standard
indicator sets avoiding duplicative or closely
correlated indicators, and selecting indicatorsthat will differentiate prospective investments(e.g., investors should not include an indicatoron mission-alignment if investments would bescreened for mission-alignment earlier in thedue diligence process).

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CLARIFYING IMPACTOBJECTIVES, APPROACH
TO IMPACT, AND PRIORITIESCASE STUDY

PCV’s quantitative impact due diligence tool is structured around its impact on
key stakeholder groups: small business owners and employees, enterprises,
and customers and communities where businesses operate. For each key
stakeholder group, PCV has identified a set of qualitative and quantitative
indicators to guide its assessment of each loan’s anticipated impact. Within
the customers and community section, for example, PCV included indicators
focused on the enterprise’s mission, the community’s access to opportunity,
the enterprise’s tenure in the community, the enterprise’s partnerships,
and the enterprise’s risk of contributing to negative community effects. To
further clarify the types of information each indicator is intended to evaluate,
the tool includes guiding questions for each indicator. The guiding question
accompanying PCV’s indicator on the enterprise’s mission, for example,
asks the scorer to answer the following question: “Does the business aim
to provide or produce a product or service with a significant social benefit?”
Identifying an intuitive framework and developing guiding questions foreach indicator made the tool more accessible to staff and strengthened
staff members’ understanding of the purpose of each indicator.

PCV Targeted Impact

Categories for Framework(Stakeholder Groups)

Indicators

PAC I F I C C O MMUNI T Y VE NTURES

Owners and Employers

MissionCommunity
Opportunity

Enterprise

TenureCustomers
and Community

Partnerships

Negative
Community Effects

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PACIFIC COMMUNITY VENTURES (PCV), A NONPROFIT
CDFI THAT LENDS TO SMALL BUSINESSES IN LOW-INCOME
COMMUNITIES, AIMS TO CREATE GOOD JOBS THAT SUPPORTSTRONG LOCAL ECONOMIES AND EQUITABLE COMMUNITIES.

Pacific Community
Ventures: Identifying
an Appropriate
Structuresocial and governance (ESG) practices. In manycases, impact investors evaluate the impact
of investees’ products and services without
systematically considering their businesspractices. Without assessing ESG practices, aninvestor will not be able to generate a holistic
picture of the investee’s business and evaluate
all positive and negative impacts that matter,
including intended and unintended ones.
See Impact Due Diligence: Emerging Best
Practices for resources on bridging the divide
between ESG and impact assessments.
əə Use IRIS+ to foster greater standardizationin impact due diligence, enable comparabilityof investments, and harmonize pre- and postinvestment IMM approaches. The same IRIS
metrics should be used within both due diligenceand post-investment monitoring to harmonize
ex ante and ex post analyses of impact, i.e., todetermine if anticipated impacts are ultimately
realized. However, investors should recognizethat they may not know which metrics are themost appropriate to track until after finalizing
the terms of the investment. For guidance on
selecting and using IRIS+ to inform investment
decisions, refer to existing IRIS+Core Metrics
Sets and see Using IRIS+ within Due Diligence,as well as IRIS+ for Decision-Making.

əə Ensure that the full set of selected indicators

assesses the investment’s anticipated impact
across the five dimensions. For additional details
on using the five dimensions within due diligence,
please see our companion report: Impact Due
Diligence: Emerging Best Practices.
While investors should adhere to the parameters
above while initially selecting indicators, theindicator list should be refined throughout thecourse of testing. Many investors find it useful tostart with a longer list of indicators and pare down
this list during testing (e.g., removing duplicativeor less important indicators), focusing on thosethat are most closely linked with the investors’ goals
and which can be applied across a diverse portfolio.
The section on Adopting a Portfolio-Wide Approachwithin our companion report on impact due diligencealso provides guidance on systematizing indicators
across impact due diligence approaches with an eye
towards standardization.
This will also help ensure that the investment teamcan easily learn how to use the tool, which will beespecially beneficial to organizations experiencing
rapid team growth or turnover. In addition to
identifying relevant indicators, investors should
consider developing guiding questions alongsideeach indicator to clarify the type of information theywant to collect and evaluate.

With inputs from our partners regarding the relative importance as well as
similarities between collected indicators, we were able to streamline the
SPI4-ALINUS social due diligence tool from 200 to about 60 indicators.”—Jurgen Hammer
Managing Director, Social Performance Task Force Europe

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əə Ensure coverage of relevant environmental,

CASE STUDY

Community Vision:
Refining indicators

COMMUNITY VISION (FORMERLY NCCLF), A CDFI BASED INSAN FRANCISCO THAT LENDS TO NONPROFITS AND SOCIALENTERPRISES IN CALIFORNIA.
Community Vision was one of the first investors to develop a quantitative
impact due diligence tool. Through testing, Community Vision was able
to significantly reduce the number of indicators in the tool to include
only those that meaningfully differentiated investment scores.

Refinement of Loan Rating System Indicators
3

Impact on Borrower Clients

3

Impact on Borrower Clients

3.1

Client Base

3.1

Client base race / ethnicity

3.2

Client Base Demographics

3.2

Client base income

Race / Ethnicity

3.3

Essential Services

3.2.2 Other Demographics

3.4

Community Multiplier EffectImpact on Financing

4

Impact on Financing

Availability

4.1

No other funding available

Unique Financing

4.2

Lessons for the field

4.1.2 Other Financing

4.3

Facilitates additional funding

4.4

Anchor / Essential Investment

3.2.1
3.3

Household Income

3.4

Essential Services

3.5

Community Multiplier Effect

4
4.1
4.1.1
4.2

Leadership

4.3

NCCLF Factor

4.3.1

Partnership4.3.2 Anchor / Essential Investment
4.3.3 NCCLF Consulting

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Framework before and after phase III testing (March-June 2015)

The scoring guidelines enable investors totranslate quantitative and qualitative information
into standardized numerical scores, which are thensynthesized to produce categorical and overall
scores. When developing scoring guidelines,
investors should strive for guidelines that:əə Minimize ambiguity: The scoring guidelines

should be specific enough that they ensure
different investment staff would assign the sameprospective investment the same score.
əə Align with ranges in scores within theexisting portfolio: Ranges for quantitative
scoring guidelines should be based on ranges
associated with the current portfolio or pipeline
if an investor has not yet deployed capital. If
an investor wants to create a three-point scale
indicator on the number of residents housed,
for example, they should use ranges for housed
residents that align with investments in the top-,
middle-, and bottom-thirds of the portfolio.
SCORE

RELEVANT CURRENTPORTFOLIO STATISTICSCORINGGUIDELINE2

The top third ofinvestments in theportfolio (or pipeline)
have housed 100 or
more residents

Investment will
finance housingfor 100 or more
residents

1

The middle third ofinvestments in theportfolio (or pipeline) havehoused 50 to 99 residents

Investment will
finance housing
for 50 to 99
residents

0

The bottom third ofinvestments in theportfolio (or pipeline)
have housed fewer than
50 residents

Investment will
finance housing
for fewer than
50 residents

PAC I F I C C O MMUNI T Y VE NTURESəə Are streamlined: The scoring guidelines

should be concise and easy-to-use, so investors
should seek to minimize the amount of text in
the guidelines. If the scoring guidelines were
examining target beneficiary characteristics,
for example, the guidelines should list out thecharacteristics and point values tied to eachrather than writing out all possible permutations.
See below for an example.
EXAMPLE OF GOOD AND BADSCORING GUIDELINE PRACTICE
Scores range from 0 to 2 and are based onwhether targeted beneficiaries are:
• Women• People of color• Low-income

Each characteristic is worth one point.
Scores range from 0 to 2 and are based on thecharacteristics of targeted beneficiaries:
2 = Targeted beneficiaries are women,
people of color, and low-income
1 = Targeted beneficiaries are women andpeople of color OR women and low-income
OR people of color and low-income
0 = Targeted beneficiaries are neither
women, people of color, nor low-income
əə Leverage location-based datasets whereavailable and relevant: Incorporating locationbased datasets into the scoring guidelines can help
reduce the burden on investees. Opportunity 360
data, for example, can be used to evaluate acommunity’s access to opportunity in the UnitedStates in the following areas: housing stability,
education, health and well-being, economic
security, and mobility.
Note that, in diverse portfolios, investors should
consider whether to use sector-specific guidelines
to more accurately assess anticipated impact
across sectors.

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DRAFTING SCORING GUIDELINESFOR EACH INDICATOR

There are valuable datasets from the World Bank and other development
organizations as well as a vast world of social science research that impact
investors can draw from. We don’t think investors have quite figured out how
to tap into those resources when developing impact management systems.”—Mariah Collins

An investor who invests in both housing andeducation projects, for example, found it helpful
to develop sector-specific ranges for an indicator
assessing the targeted number of beneficiaries foreach investment. As a result, this ensured that theinvestor avoided systematically penalizing housing
projects, which tend to have a lower number ofbeneficiaries. Note that it is easiest to incorporate
these sector-specific guidelines when the different
sets of scoring guidelines for each sector use thesame scoring scale for the same indicator (e.g., in
the examples above, all sectors used a 0 to 2-point
scale for the indicator on the targeted numberof beneficiaries).

PAC I F I C C O MMUNI T Y VE NTURES

A word of caution, however: investors should
recognize that including sector-specific guidelines
increases the complexity of developing, testing andimplementing a quantitative impact due diligence
tool, so these should only be included if sectoragnostic indicators insufficiently reflect anticipatedimpacts or do not differentiate investment scores. It
may be the case, for example, that while investments
in certain sectors tend to receive lower scores oncertain indicators, the same indicators and scoring
guidelines are appropriate for the whole portfolio.
(E.g., investments in housing projects may tend
to benefit fewer individuals than investments in
education projects, and an investor will want toconsider investment “reach” as part of their decisionmaking and so would not want to adjust scores basedon differences in their expected impact across sectors.)

The Impact Due Diligence Guide 46

B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O LManager, BridgespanSince it is highly unlikely that allindicators are equally important when assessing
anticipated impact, investors should assign eachindicator a weight to ensure the quantitative tool
accurately reflects the organization’s priorities,
which should incorporate the priorities of thosemost affected by the investment. To avoid adhering
to false rigor when choosing weightings, investors
should assign each indicator to broad categoricalbuckets correlated with standard weightings.
Investors, for example, are more likely to havethe ability to distinguish between low-, medium-,and high-importance indicators versus between
indicators that should be worth seven or thirteen
percent of the total impact due diligence score.
It is important to consider that weights are basedon relative importance; while it may be tempting toassign all indicators as medium or high importance,
this will only be a productive exercise if the weightings
introduce differentiation across the indicators. It
can be helpful to begin with more differentiatedweightings to better understand the specific impacts
of different indicators and then refine the weightings
throughout the course of testing.
While weightings will be unique to each investor, it isworth noting that several investors weight indicators
related to investor contribution the most heavily. Thisaligns with the perspective, espoused by Paul Brest,
Kelly Born and others, that investments are not truly
impactful unless they have additionality, or contributeto impact that would not have likely occurred but for
their investment.

PAC I F I C C O MMUNI T Y VE NTURESBUILDING THE TOOLThis section focuses on building Excel-based
quantitative impact due diligence tools.
While some investors are utilizing robust web-based
platforms to inform their due diligence, including
GIIRS and the B Impact Assessment, the majority ofinvestors, especially those operating in developing
countries where they might not have consistentinternet access, prefer Excel-based tools to online
tools. Additionally, since this guide seeks to empowera diverse set of impact investors to build their own
impact due diligence approaches, we believe that
Excel is currently the most ubiquitous software to
support widespread adoption. See section 7 in
Impact Due Diligence: Emerging Best Practices fordetails on the importance of prioritizing accessibility.
Investors should include the following elements in theirExcel-based quantitative impact due diligence tools:
əə An overview/instructions sheet, to help teammembers understand how to use the tooləə An investment information sheet, which isreferenced throughout the tooləə Scoring sheets (one to align with each major

category from the framework)əə A scoring summary sheet
əə Sheets containing additional guidance

The Impact Due Diligence Guide 47

B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O L

ASSIGNING WEIGHTSTO EACH INDICATOR

Community Vision:
Assigning Weights
to Each Indicator

PAC I F I C C O MMUNI T Y VE NTURES

TO AVOID INTRODUCING FALSE RIGOR INTO THE ASSIGNMENTOF INDICATOR WEIGHTS, COMMUNITY VISION ASSIGNED EACH
INDICATOR AN IMPORTANCE OF HIGH, MEDIUM, OR LOW.
Indicators deemed to be high importance were weighted five times
as heavily as those assigned low importance, and indicators assigned
medium importance were weighted three times as heavily as those
assigned low importance. Assigning indicator weights based on thesehigh-level categorizations enabled Community Vision to more accurately
assess the potential investment’s impact in alignment with their objectives
without introducing additional subjective complexity into theirassignment of weightings.

The Impact Due Diligence Guide 48

B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O L

CASE STUDYəə The contents of the tooləə Any technical considerations (e.g., tools that use

VBA macros should include instructions for allusers to enable macros to ensure full functionality)
əə Guidance on the order in which different steps

should be completed, if applicable (some tools
pre-populate certain pieces of information basedon information entered elsewhere in the tool)əə Guidance on where in the workbook users should

input information obtained during due diligenceəə Guidance on where in the workbook users

should look for final scoresəə Contact information (typically an email address)

for a team member who is available to answer
questions about the tool
Investment Information Sheet
Next, investors should create an investment
information sheet, which should appear before thescoring sheets in the impact due diligence tool. This
sheet can store identifiers and other key information,such as the enterprise's address, that will be usedthroughout the assessment. Investors should also
include fields for the investee’s contact informationin case any later follow-up is required.

PAC I F I C C O MMUNI T Y VE NTURES

Scoring Sheets
Investors should then build scoring sheets into whichusers can enter the information used to score eachindicator. Tools should include a separate scoring
sheet for each major category used as part of theorganizing structure; separating the indicators out onto
multiple scoring tabs both makes the scoring tabs lessoverwhelming and reduces the amount of scrolling—which should be minimized wherever possible.
When developing scoring sheets, investors should:əə Build in data validation checks to ensure thedata is complete and logicaləə Auto-populate data wherever possible (e.g.,

one investor asked about certifications early inthe assessment and then used the parameters
underlying that certification to populate otherfields in the tool)
Investors should also include an open-ended
comments field alongside each score so that theuser could add notes clarifying the rationale for theirdecisions and any unique circumstances that wereconsidered; investors using both an initial scorer
and a reviewer should include comments fields foreach. See the section later in this guide on Staffing
Impact Due Diligence for guidance on determining
which staff are responsible for the use and ongoing
management of the impact due diligence tool.

The Impact Due Diligence Guide 49

B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O L

Overview/Instructions Sheet
Investors should develop an overview/instructions
tab that describes:

Investors should also include a visual comparison
between the prospective investment opportunity andthe existing portfolio. (See section 6 in Impact Due
Diligence: Emerging Best Practices for more on theimportance of adopting a portfolio-wide approach.)
Most investors include a radar or bar chart to highlightthe prospective investment’s comparison to theexisting portfolio. Others have found it helpful to
include a visual comparison based on color-coded
cells, with the color-coding tied to conditional
formatting based on the investment’s scores.
PCV IMPACT DUE DILIGENCE TOOLOWNERS AND EMPLOYEES(Good)
70%

Loan Score

60%

Median Score

SCORING SUMMARY
CATEGORY

IMPACTRATINGLOAN
SCORE

MEDIANSCOREOVERALL SCORE

Good

55%

57%

Owners andEmployees

Good

54%

52%

Enterprise

Good

63%

61%

Very high

58%

20%

Customers andCommunity

Sheets Containing Additional Guidance
In some cases, determining an indicator’s scorewill require the investor to gather and interpretthird party data, particularly for location-relatedsocioeconomic, environmental or demographic
indicators. For these indicators, it is helpful to prepare
detailed guidance for users within a separate sheet
rather than within the scoring sheets. For example,
an investor may include guidance on calculating acommunity's poverty rate, extent of gentrification,or relative access to transportation, housing andjobs by accessing and analyzing publicly available
data. For examples of some of the datasets referred
to in these additional pieces of guidance, see
Appendix B: Data Resources.

50%
40%
30%
20%
10%
0%

CUSTOMERSAND COMMUNITY(Very High)ENTERPRISE(Good)

Pacific Community Ventures, 2019.

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B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O L

Scoring Summary Sheet
Investors should build a scoring summary sheet that
aggregates data across scoring tabs and translates
the individual indicator scores to categorical andoverall scores, typically displayed in a table. Investors
should consider assigning qualitative classifications
to the overall and categorical scores based on acomparison to investments in the current portfolio
or pipeline. (E.g., quintiles could be assigned as very
high impact, medium impact, moderate impact,
limited impact).

It can be challenging for investors to develop
impact due diligence approaches without
applying them to their work, so investors should
refine quantitative impact due diligence tools
by testing them on investments in their current
portfolio. If the tool is being developed for a
relatively new fund with a small existing portfolio,
investors should test the tool on the existing pipelineof investment opportunities for which they haveaccess to relevant data. Using the tool to test
investments will help the investor understand what
is working well and where there are opportunities forrefinement. More specifically, impact investors will
want to evaluate the areas detailed below in order tocalibrate their tool.

CONSIDERATIONSINDICATORS

Most investors find it helpful to go through several
rounds of iteration, testing in batches of five to ten
investments, soliciting feedback, refining the tool,and then repeating. Please note that the testing andrefinement period is generally most productive wheninvestment staff, who are likely to be the ones using
the tool moving forward, are engaged, as they are
typically best positioned to share actionable feedback
to refine the tool based on their understanding ofwhat information they can feasibly collect frompotential investees.

KEY QUESTIONSəə Are the indicators intelligible to those who are not deeply familiar with our approach?
əə Are there any sets of indicators that feel duplicative? Any areas where there is an
opportunity to streamline?
əə Are there any indicators that are missing? Are there any gaps or areas not covered?

CLARITY / APPROPRIATENESSOF SCORING GUIDELINES

əə Are there scoring guidelines that are confusing or ambiguous?

USER EXPERIENCEəə Are there elements of the tool that are confusing or difficult to use? If so, what are they?

SCORESəə Are there sets of indicators for which the scores are closely correlated? If so, is there an
opportunity to streamline?

əə Are there scoring guidelines that don’t accurately reflect the organization’s intended impact?

əə Are there indicators for which all investees, or nearly all investees, receive the same score?
If so, is there an opportunity to streamline?
əə Are the investments that the organization believes to be most impactful receiving the highest
scores? If not, why?
əə Are the investments that the organization believes to be least impactful receiving the lowest
scores? If not, why?

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B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O LTESTING AND REFINING

—Catherine Dun Rappaport
Vice President of Learning and Impact Measurement, BlueHub Capital

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 52

B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O LWhen piloting our tool, lending staff gave feedback on questions that needed to beclarified, scores that weren’t aligned with their experience, and aspects of the toolthat could be improved to make it easier to use. That feedback was essential, andis one of the reasons we now regularly use the tool and find it genuinely helpful. ”

For an impact due diligence tool to effectively guideinvestment decision-making, the scores it produces
must be compared to relevant benchmarks. (Seesection 6 in Impact Due Diligence: Emerging Best
Practices.) In other words, investors need a way ofdefining strong and weak scores. Since investors tend
to develop their own unique tools based on theirorganization’s impact objectives, approach to impact,
and priorities, as well as the lack of relevant impactrelated benchmarks in most sectors, it is unlikely they
will be able to use externally-available benchmarks.
Therefore, investors should use benchmarks basedon the impact due diligence scores of investmentsin their current portfolio. If investors are launchinga new fund and do not yet have a portfolio, they canuse data from the prospective investments in theirpipeline instead.
To establish relevant current portfolio benchmarks,
investors must:əə Score all investments in the current portfolio

by using the impact due diligence toolǁǁ The cutoff can be used to assign ratings basedon the distribution of investments across theexisting portfolio
EXAMPLE: RATING BASED ON DISTRIBUTION OF
INVESTMENTS IN THE EXISTING PORTFOLIORATINGHIGH
IMPACT

MODERATE
IMPACT

LIMITEDIMPACTOVERALL

60%

40%

0%

INVESTEE

70%

30%

0%

CUSTOMER

55%

50%

0%

COMMUNITY

50%

40%

0%

Note: Scores shown represent the minimum scores
required to qualify for each category.

Investors should continue to update the investment
portfolio dataset and scoring cutoffs as newinvestments are made; ensuring the scoring cutoffs
are updated in both the Excel tool and investment
portfolio file. Continuously updating the scoring
cutoffs ensures that prospective investments continue
to be compared to relevant portfolio benchmarks.

əə Calculate the median portfolio score, both overall

and for each category in the organizing structureǁǁ This data can be used to populate charts
visually comparing the prospective investment
to the current portfolio
əə Identify the number of rating categories to

employ (e.g., using 3 categories—high impact,
moderate impact, and low impact) and calculate
the scoring cutoffs, both overall and within eachcategory, for the relevant number of rating
categories (e.g., in the 3-category example, theinvestor would want to identify the cutoff scoresfor the top third of the portfolio, middle third of
the portfolio, and bottom third of the portfolio)

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 53

B UI L DI N G A Q UA NT I TAT I V E I M PAC T D U E D I L I GE NC E TO O L

BUILDING AN INVESTMENTPORTFOLIO DATASET TO
BENCHMARK INVESTMENT SCORESIMPLEMENTING ASYSTEMATIC APPROACH to
IMPACT DUE DILIGENCE

Integrating Impact
Due Diligence into
Existing Processes

Staffing Impact
Due Diligence

Using Impact Due
Diligence to Strengthen
Relationships with Investees

2.1

2.2

2.3

PAC I F I C C O MMUNI T Y VE NTURES

Using Impact Due
Diligence to Inform
Decision-Making

Using Impact Due Diligence
to Inform Post-Investment
Evaluations of Impact

2.4

2.5

The Impact Due Diligence Guide 55

56

Impact Due Diligence: Emerging Best Practices

PACIF IC COM M U N I T Y V EN T U R ES

Integrating Impact Due
Diligence into Existing Processes

2 .1

Engaging in impact due diligence is much more than a technical exercise andrequires staff time, organizational buy-in, and thoughtful implementation.
This section provides an overview ofstrategies for successfully integrating
impact due diligence into existingprocesses to foster adoption and ensure ongoinguse, both considering staffing implications as well
as existing investment processes.

PAC I F I C C O MMUNI T Y VE NTURESPROCESS FOR CONDUCTING
IMPACT DUE DILIGENCE
Investors should conduct impact due
diligence, whether it be a narrative of expected
impact, due diligence questionnaire, or quantitative
tool, in parallel with financial due diligence. This
enables investors to more efficiently integrate
impact due diligence into existing processes andstreamline data collection.

The Impact Due Diligence Guide 57

INTEGRATING IMPACT DUE DILIGENCE INTO EXISTING PROCESSESIMPLEM ENTING A SYST E M AT I C A PPROAC H TO I M PACT DU E DI L I G E N C E

INTEGRATING IMPACT INTO PRE-INVESTMENT DECISION MAKINGINVESTMENT STAGE

IMPACT DUE DILIGENCE PROCESS

Deal Sourcing

Preliminary Screen

Narrativesof Expected
ImpactImpact-Focused
Due Diligence
Questionnaire

Quantitative
Impact Due
Diligence Tool

Investment Memo

Results of Impact Due Diligence Assessments

Investment Committee Decision

Consideration of Impact Due Diligence Results

Pacific Community Ventures. Representation of Pre-Investment Decision-Making. 2019.

Note that while many investors integrate somequestions about impact into an initial screening of
an investment’s viability, most impact due diligenceoccurs after the preliminary screen.

INTEGRATION INTO EXISTING PROCESSES

Implementing a new impact due diligence approach
may also require the development of a new workflow.
Involving the staff affected by these changes may help
increase their buy-in, as they will have more time tocontribute to and learn their new workflows.

Investors have found it helpful to integrate impact
due diligence into the following stages of theinvestment process, which helps ensure that they
are used to drive decision-making.

We’ve considered giving loan officers tablets to fill out the [impact
due diligence] tool in real time when speaking with potential borrowers,
but I think that constantly entering data during the conversation mightmake it challenging for loan officers to build rapport with entrepreneurs.”—Mike McCrelessImpact Management Project and Former Senior Director of Strategy and Impact, Root Capital

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 58

INTEGRATING IMPACT DUE DILIGENCE INTO EXISTING PROCESSES

Financial Due Diligence

ROLE OF IMPACT DUE DILIGENCE

DEAL SOURCING

Investors should highlight their intended impact in marketing materials and on intake forms tostrengthen their pipeline of impact-aligned investment opportunities.

PRELIMINARY SCREEN
THROUGH FINANCIAL
DUE DILIGENCE

Investors should conduct their impact due diligence assessment in parallel with financial due
diligence to streamline data collection. Since investors often collect information for impact due
diligence assessments through conversations with investees, they should integrate discussionsof impact, especially regarding how key stakeholders are affected, into conversations around theorganization’s business model and financial performance. (See section 4 of Impact Due Diligence:
Emerging Best Practices.) However, investors should complete the scoring of their quantitative
tools separately to allow the conversations to flow more naturally.
Note: The practice of conducting impact and financial due diligence concurrently should yieldefficiency benefits for investors across asset classes, but investors focusing on public equity
investments will also likely conduct these assessments by leveraging publicly available informationand ESG datasets (e.g., MSCI, Sustainalytics). (See section 3 of Impact Due Diligence: Emerging
Best Practices for details on the importance of bridging the divide between ESG and impact
assessments.) For an example of how ESG is integrated into investment due diligence for public
equities see Neuberger Berman’s white paper on ESG investing.

INVESTMENT MEMO

Investors should incorporate the results of expected impact assessments into investment memos
alongside the results of financial due diligence assessments. Investors should synthesize the resultsof the qualitative assessment into a narrative of expected impact explaining the potential investee’s
approach to impact, anticipated impact, any unique considerations and applicable risks. Many
investors are adamant that, even where quantitative impact due diligence assessments areavailable, an accompanying narrative is critical to comprehensively communicating the prospective
investee’s anticipated impact and the capital’s role in supporting that impact. (For example,
descriptions of the extent to which customers are underserved, the expected influence the company
may have on its industry, or any unique aspects of the business model that enhance or detractfrom the company’s ability to achieve impact may be easiest to convey with a narrative that
accompanies a quantitative impact score.) Investors with quantitative impact due diligence tools
should also incorporate the results of their quantitative assessments by including tables summarizing
investment's overall and categorical scores, as well as charts showing each investment's anticipatedimpact performance in relation to the existing portfolio. See section 7 of Impact Due Diligence:
Emerging Best Practices for an overview of the importance of prioritizing the accessibility andcomprehensibility of impact due diligence approaches.

INVESTMENTCOMMITTEE MEETINGTo ensure that financial and impact performance are used to drive decision-making, investors
should present the results of impact due diligence assessments alongside assessments of financial
performance at investment committee meetings. While each investor’s unique organizational
structure influences the format of these meetings, it can be helpful to include both investment
officers and members of the impact team in these discussions.

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INTEGRATING IMPACT DUE DILIGENCE INTO EXISTING PROCESSESPROCESS

Staffing Impact
Due Diligence

To win internal buy-in for, collaboratively develop, and effectively implement
systematic approaches to impact due diligence, staff members across theorganization must have clearly defined roles and responsibilities.
Although each investor’s organizational
structure will surface unique considerations,this section offers high-level guidance on
effective strategies for developing and implementing
formalized approaches to impact due diligence.

ASSIGNINGRESPONSIBILITY AND
DETERMINING ROLES
To be successful, staff across the organization
should work collaboratively to develop andimplement the organization’s approach to impact
due diligence.

DEVELOPMENT
While developing a systematic approach to impact
due diligence should be a collaborative effort acrossteams, each investor should identify a single project
lead to ensure accountability. While successfulproject leads can have investment or impact-focusedroles, they should possess the following qualities:
əə Influence across the organization, including

the ability to modify existing processesəə A strong understanding of the organization’s

targeted impact
əə Relevant expertise, or a willingness to seekout relevant resources, to inform thedevelopment of the organization’s approachto impact due diligenceəə The capacity to develop, implement, and refinea systematic approach to impact due diligence(E.g., at least five hours per week for four to
twelve months.)

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STAFFING IMPACT DUE DILIGENCE

2.2

IM PLEM ENTING A SYST E M AT I C A PPROAC H TO I M PACT DU E DI L I G E N C E

STAFFING IMPACT DUE DILIGENCE

CASE STUDY

Pacific Community
Ventures: Staffing
the Developmentof an Impact Due
Diligence Tool

PAC I F I C C O MMUNI T Y VE NTURES

TO DEVELOP THEIR QUANTITATIVE IMPACT DUE DILIGENCE TOOL,PCV WORKED CROSS-FUNCTIONALLY.
PCV’s Research and Consulting team worked with PCV’s Lending team togather feedback on indicators, indicator weights, and scoring guidelines;
the feasibility of collecting certain indicators from investees; and whether
the tool was holistically assessing anticipated impact. Given that thelending team works most closely with investees, it was important tocollect their feedback and ensure their buy-in as the quantitative tool
was developed.

The Impact Due Diligence Guide 62

and/or pipeline, where applicable, including
insights into which investments are perceived
as more or less impactful
əə A strong understanding of existing processes

and the feasibility of different assessments
While the project lead should serve as the championof the initiative and remain accountable for the overalloutcome, the lead should engage staff members
across teams to ensure that developing the impact
due diligence approach is a collaborative initiative.
In particular, it will be critical to engage membersof the management and investment teams:
əə Management: Given that senior leadershipsets the organization’s strategy, including theorganization’s impact objectives and investment
approach, it is critical to engage members of the
management team to understand and align on
the organization’s expectations, priorities, andthe types of impact it seeks to achieve. See theDeveloping Impact Goals section for more details.
əə Investment Staff: Since investment staff havethe most direct contact with investees and often
the best understanding of their impact models,the project lead should solicit input frominvestment staff to clarify their interpretationsof the organization’s impact objectives andapproach to impact.

As a next step, the project lead should draft the
preliminary impact-related DDQs, indicators, weights,
and scoring guidelines, soliciting feedback frommanagement and investment staff as capacity andinterest allow.
The intensity of each type of staff member’s
engagement will vary by project and acrossorganizations; as the initiative moves from theconceptual stages of development into testing andrefinement, management usually becomes lessinvolved and investment staff play a more significant
role. Investment staff are instrumental in providing
feedback on the viability of collecting specific data
since they typically have the most direct contact withinvestees; this includes when data may be collected
and where there might be ambiguity around the datacollected. During the final stages of refinement, thisperspective typically enables the investment teamto provide valuable concrete guidance that helps
improve recommended processes.
While not always feasible, the project lead should
also consider engaging and soliciting feedback
from existing investees to better understand therelevance and availability of the information anddata needed to administer the impact due diligence
tool. In this way, the project lead can elevate theperspectives of key stakeholders and ensure the toolreflects the priorities of those who are impacted by
the companies or projects they finance.

The loan officers intimately know what's happening in the communities
we serve, which is why we relied upon their perspective when we built
a tool to efficiently and effectively assess anticipated impact.”—Mike McCrelessImpact Management Project and Former Senior Director of Strategy and Impact, Root Capital

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 63

STAFFING IMPACT DUE DILIGENCEəə Significant knowledge of the existing portfolio

CROSS-TEAM COLLABORATIVE APPROACH TO
DEVELOPING A QUANTITATIVE IMPACT DUE DILIGENCE TOOL

Clarifying Impact
Objectives, Model,
and Priorities

Identifying
Framework andIndicators

Drafting Scoring
Guidelines

Assigning
Weights

Testing
and Refining

PROJECT LEAD

MANAGEMENT TEAMINVESTMENT STAFF

USE
Similar to the development process, the implementationof formalized approaches to impact due diligenceshould also involve collaboration across teams.
While staffing models for IMM will vary based on each
investor’s organizational structure, level of buy-in, andcapacity constraints—as outlined in the GIIN’s Stateof Impact Measurement and Management Practice—investors should consider engaging the groups ofstaff members detailed in the table that follows asinterest and capacity allow. For smaller investors who
have staff engage in both investment and impact
measurement activities, the potential roles for teammembers as described in the table becomes more
flexible and overlapping.

We have spent a lot of time educating the investment committee about
our impact due diligence approach, but that has been immensely valuable.
This is the first time they’ve had nonfinancial methods to evaluate our portfolio.”—Fortune 500 Institutional Investor

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STAFFING IMPACT DUE DILIGENCE

Pacific Community Ventures, 2019

IMPACT STAFF

POTENTIAL ROLE(S)əə Overseeing administration andensuring use of the impact due
diligence tool, supporting investment
staff where questions ariseəə Reviewing completed impact due
diligence assessments to ensure
consistency across investments

INVESTMENT
STAFF

əə Engaging in discussions withpotential investees to collectinformation necessary for impact
due diligence assessments
əə Presenting the results of the impact
due diligence assessment, alongwith the financial due diligence, atinvestment committee meetings

ANALYSTS

əə Sourcing and pre-populating
location-based data to reducethe burden on investment staff

INVESTMENTCOMMITTEEəə Reviewing summaries of impact
due diligence assessments as partof investment decision-making

PAC I F I C C O MMUNI T Y VE NTURES

The most effective approach to bolstering staff
members’ ability to speak about the tool is to teachthem how to use it—or at least familiarize themwith it. Project leads should therefore facilitate
staff trainings so that staff can articulate the usecase for impact due diligence and its impact on theinvestment process.
Where applicable, investors should also educate theinvestment committee on impact due diligence. Thiscan help ensure the approach is viewed as credible,
committee members have an understanding of how
impact due diligence is used and can offer input into
the tool’s development, and can, where desired,discuss expected impact when making investment
approval decisions.

The Impact Due Diligence Guide 65

STAFFING IMPACT DUE DILIGENCE

TYPE OFSTAFF MEMBERCASE STUDY

WHILE THE DEVELOPMENT OF BLUEHUB’S QUANTITATIVEIMPACT DUE DILIGENCE TOOL WAS LED BY A MEMBER OF THE
IMPACT TEAM, THE INITIATIVE WAS A COLLABORATIVE EFFORTTHAT INVOLVED THE LOAN FUND PRESIDENT, LOAN OFFICERS
AND PORTFOLIO MANAGEMENT STAFF.
Impact Due Diligence Tool Development
The development of BlueHub’s quantitative impact due diligence tool
was led by the organization’s Vice President of Learning and Impact
Measurement. She took the lead on drafting initial indicators and scoring
guidelines, and on assigning preliminary weights. She vetted early draftsof the tool with the full lending team and piloted a semi-final version
with lenders. Together, they rated historic loans and adjusted scoring
guidelines so that the tool better captured the impact of those loans.
This helped ensure that the final tool was user-friendly and produced
scores reflective of loans’ actual impact. As part of this process, the Vice
President of Learning and Impact Measurement enhanced the tool tosimplify and streamline the assessment process, to minimize subjectivity
and use objective data, and to make findings accessible. Engaging loan
fund staff members throughout the lifecycle of the project helped BlueHub
efficiently integrate the tool’s use into existing processes and to develop
buy-in. The current impact due diligence scoring process takes staff
30-45 minutes per prospective loan, and staff use it for almost all loans
under consideration.

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STAFFING IMPACT DUE DILIGENCE

BlueHub Capital:
Staffing Impact
Due DiligenceUsing Impact Due Diligence
to Strengthen Relationships
with Investees

2.3This section explores the ways in which investors can use impact due diligenceto strengthen relationships with investees, as well as build their capacity.
Impact due diligence requires aninvestment of time from both investors
and investees. While it is intended to help
investors better understand anticipated impact,
investors can use impact due diligence to strengthen
relationships with their investees by helping themto derive value from the process. (See section 4 of
Impact Due Diligence: Emerging Best Practices
for more details.) This section explores the ways
in which investors can use impact due diligence tostrengthen relationships with investees, as well asbuild their capacity.

PAC I F I C C O MMUNI T Y VE NTURES

Impact investors conducting systematic impact
due diligence can strengthen their relationships
with investees by:əə Developing a shared vision around intended

impact: During impact due diligence, investors
speak with investees to collect the informationnecessary to assess anticipated impact and tounderstand the perspective of key stakeholders
affected by the investment. These discussions
support alignment between the investor andinvestee and signal that impact is a priority, andhelp foster a strong foundation for additional
conversations on impact post-investment.

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USING IMPACT DUE DILIGENCE TO STRENGTHEN RELATIONSHIPS WITH INVESTEESIMPLEM ENTING A SYST E M AT I C A PPROAC H TO I M PACT DU E DI L I G E N C E

əə Offering investees insights to help them betterəə Offering guidance on risk mitigation strategies

understand their strengths and weaknesses inrelation to impact: Some investors choose toshare the results of impact due diligence with
their investees directly, helping them to better
understand their strengths and weaknesses inrelation to impact. One investor found that thispractice helps encourage transparency, ensureaccountability, and promote progress over time.
Another investor views the discussion following
the share-out of results as an opportunity toboth increase the investees’ capacity and also
gauge their commitment to impact; this investor
sees questions from investees on opportunities
to increase their impact as an indication of theirgenuine commitment. (See section 5 of Impact
Due Diligence: Emerging Best Practices formore details on the importance of evaluating
a commitment to impact and learning.)and opportunities to improve their impact:
Several investors cite using impact due diligenceto identify impact risks, and many of theseinvestors use these insights to develop risk
mitigation strategies that they then share with
their investees.
service providers and other investors that canhelp them improve their performance: Investors
gain a deeper understanding of prospective
investees’ strengths and weaknesses during
impact due diligence, and they can use thisknowledge to inform more effective referrals totechnical assistance providers, other investorsor other resources with the potential to help
bolster investee performance.

We found that some of the enterprises we were evaluating weren’t generating
significant impact, so we developed a report on the strategies they could
implement to become more impactful. Empowering organizations to increase
their social impact is essential to our approach.”—Yulia Romaschenko
Director of Programmes and Donor Relations, Charities Aid Foundation

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 68

USING IMPACT DUE DILIGENCE TO STRENGTHEN RELATIONSHIPS WITH INVESTEESəə Providing investees with referrals to resources,

Bridges FundManagement:
Using Impact
Due Diligence
to Strengthen
Relationships
with Investees

PAC I F I C C O MMUNI T Y VE NTURES

BRIDGES FUND MANAGEMENT IS A UK-BASED FUND MANAGER
SPECIALIZING IN SUSTAINABLE AND IMPACT INVESTING.
Bridges benefits from the IMM expertise and thought leadership of theBridges Impact+ team. Bridges builds strong relationships by engaging
deeply with potential investees during impact due diligence. The
Bridges team begins by developing investment-specific logic models incollaboration with investees, which fosters a shared understanding of
the investment’s anticipated impact and signals Bridges’ commitment toimpact. The logic model is then used to guide a discussion of the impact
metrics that could be tracked over time. While building investmentspecific logic models may not be the right approach for all investors,
especially those with a high volume of transactions, the practice ofengaging closely with investees during impact due diligence can help all
investors ensure alignment between investments and impact goals.

The Impact Due Diligence Guide 69

USING IMPACT DUE DILIGENCE TO STRENGTHEN RELATIONSHIPS WITH INVESTEESCASE STUDY

Using Impact Due Diligence
to Inform Decision-Making

2.4

For investors to maximize the value of their impact due diligence assessments,
they should use their assessments to inform both pre- and post-investment
decision-making.
INTEGRATING IMPACT DUEDILIGENCE INTO EXISTINGPROCESSES
Pre-Investment
Prior to closing investments, investors can use
impact due diligence assessments to support
portfolio strategy by:əə Ensuring attainment of impact thresholds ortargets: Some investors set quantitative, impactrating thresholds, which are minimum acceptable
scores for an investment or portfolio, as well as
targets, which are desired scores for an investment
or the portfolio overall. Investors with impactrating thresholds or targets use the results ofimpact due diligence assessments to understandhow prospective investments would impact theiroverall portfolio performance, and whether
making that investment would enable theportfolio’s impact scores to remain within its
targeted parameters. While setting quantitative

PAC I F I C C O MMUNI T Y VE NTURES

impact thresholds or targets can help withportfolio management, some investors are waryof implementing these practices too quickly,
given uncertainty regarding the accuracy of
newly-implemented impact due diligence tools
and the limited availability of data that could
inform the selection of realistically achievable
impact thresholds or targets. Impact thresholds
and targets should only be used when investors
have obtained sufficient evidence that theirquantitative impact due diligence tools areadequately predictive of impact.
əə Moving towards the efficient impact frontier:Several investors are using, or hope to begin using,
the results of quantitative impact due diligenceto move closer to creating an efficient impact
frontier, at which a portfolio delivers maximum
impact for a given level of financial return.

The Impact Due Diligence Guide 71

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

IMPLEM ENTING A SYST E M AT I C A PPROAC H TO I M PACT DU E DI L I G E N C E

Root Capital:
Moving Towards
the Efficient
Impact Frontier

PAC I F I C C O MMUNI T Y VE NTURES

ROOT CAPITAL IS A NON-PROFIT SOCIAL INVESTMENT FUND
THAT FINANCES SMALLHOLDER FARMERS ACROSS AFRICA,
LATIN AMERICA, AND SOUTHEAST ASIA.
Root Capital has been a pioneer in developing quantitative impact due
diligence tools and facilitating investors’ movement towards the efficient
impact frontier. Root Capital conducts quantitative impact due diligenceassessments of each investment’s prospective social and environmental
impact; the organization then plots the risk-adjusted expected financial
returns of loans on one axis of a graph and the expected aggregate
impact from the quantitative assessment on the other to ensure thatthe portfolio effectively balances financial return and expected impact.
Root Capital uses this method to improve their decisions around loan
approval, capital allocation, and portfolio goal-setting.

The Impact Due Diligence Guide 72

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

CASE STUDY

Since investors must understand each investment’s
prospective impact to balance impact and riskadjusted financial return across the portfolio,
quantitative impact due diligence tools are a
critical step towards effectively executing thisportfolio strategy.

əə Informing investment terms: Some impact

əə Informing whether a prospective investee

receives financing: Investors seeking to build an
impactful portfolio use the results of impact due
diligence assessments, where they are available,
to inform decisions about capital deployment.

investors are, or hope to soon begin, using theresults of impact due diligence assessments
to inform investment terms. Impact investors
providing loans, for example, offer lower riskadjusted interest rates to investees with greater
expected impact.

We assess expected impact whenever we’re evaluating an investment
opportunity. We discuss the targeted social or environmental impact, but alsocollect impact data and ensure it informs the investment decision.”—Anna Kanze
Chief Operating Officer, Grassroots Capital Management

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 73

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

Prior to investment, impact investors can use impact
due diligence assessments to inform individual
investment decisions by:

While a few investors use quantitative impact
scoring cutoffs from quantitative impact due
diligence assessments (e.g., deals must scoremore than a 5), most view quantitative scoresas one of several important inputs informing
the investment decision.

CASE STUDY

THE RISE FUND WAS LAUNCHED BY TPG, ONE OF THE WORLD’SLARGEST PRIVATE EQUITY FIRMS, WITH TWO-BILLION-DOLLARSIN 2016.
The Rise Fund aims to achieve market-rate returns along with a social
or environmental impact and has developed a methodology to calculate
the economic value of the social or environmental impact they believe
will occur from each dollar invested. This methodology is known as the
Impact Multiple of Money™ and has six steps:
1. Assess relevance and scale
2. Identify evidence-based outcomes
3. Estimate the value of those outcomes to society
4. Adjust for risks
5. Estimate terminal value
6. Calculate the social return on every dollar invested
The Rise Fund will only invest in companies when the Impact Multiple ofMoney calculation suggests that $2.50 of social or environmental return
will be generated for every $1 of capital invested. This is expressed as an
Impact Multiple of Money™ of 2.5×, and demonstrates how the Rise Funduses impact due diligence to inform investment decisions.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 74

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

The Rise Fund’s
Impact Multipleof Money:
Informing Whether
a Prospective
Investee Receives
FinancingCASE STUDYHERON IS A PRIVATE FOUNDATION WITH A MISSION TO HELPPEOPLE AND COMMUNITIES HELP THEMSELVES OUT OF POVERTYBY CHAMPIONING PEOPLE, PLACES, AND ENTERPRISES WHO
CHALLENGE BROKEN CONVENTIONS AND DARE TO CHANGE.
Heron works to achieve their impact by using the spectrum of investment
tools, from grants to below-market investments (e.g., loans) and marketrate investments (e.g., fixed income, equity). Using Net Contribution,
Heron has committed to aligning their entire portfolio with their mission.
When Heron defines the net contribution of an enterprise, they ask what
the aggregate effect of that enterprise is on the world, including both
positive and negative effects. Heron then uses the net contribution lensto analyze how enterprises both consume and generate four types ofcapital: human, natural, civic, and financial. To ensure that Heron isconsistently applying the net contribution lens and holding all enterprises
to the same standard, they:əə Collect and report data at the enterprise leveləə Measure both negative and positive performance of the enterpriseəə Track and report data over timeəə Track and report data across the totality of the enterprise as it

relates to all relevant stakeholders and capitals
əə Recognize that enterprises have a limited zone of control
əə Whenever possible, ensure that the data has integrity(and is ideally even audited)əə Apply the framework as appropriate across enterprise types,

tax statuses, and asset classes
əə Apply the framework as appropriate on a peer-relative basis

By applying its net contribution approach, Heron is able to more efficiently
compare the expected and realized impacts of a diversity of investments
both before and after capital is deployed.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 76

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

Heron: Informing
Decision-Making

agreements: Some investors use impact due
diligence to identify impact risks and develop
remediation plans to address those impact risks.
One investor’s quantitative impact due diligence
tool even includes potential risk mitigation
strategies, which are cited in conversations withpotential borrowers. Some investors incorporate
adherence to remediation plans as specificimpact covenants in the investment agreement.
Other investors have used impact due diligenceto identify opportunities to achieve greater levelsof impact and have set impact targets codified as
impact covenants that include financial incentives(e.g., reduced interest rate for loans) for
achieving results during the investment period.
Post-Investment
After investments are deployed, investors can use
the results of impact due diligence assessments by:əə Identifying appropriate technical assistanceproviders and resources: Since conducting
impact due diligence assessments strengthens

PAC I F I C C O MMUNI T Y VE NTURES

investors’ understanding of their investees’
strengths and weaknesses, investors are using
this knowledge to help them more effectively
select appropriate technical assistanceproviders for each investee.
əə Establishing impact baselines and/or impact

targets, against which investees’ performanceis assessed over time: Investors cited using
information from impact due diligence to establish
impact baselines and guide the developmentof impact targets. For additional guidance on
investee-specific, transaction-level targets
please see the IMP’s guidance on this topic.
əə Informing compensation and careeradvancement: While none of the investors
interviewed link quantitative impact due diligence
scores to compensation and advancement—even though a handful of investors compensate
fund managers based on impact performance—
this was cited as the “next frontier” of elevating
the practice of IMM such that expected impact isdeemed as important as expected financial risk
and return.

The Impact Due Diligence Guide 77

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

əə Informing impact covenants in investment

IDB Invest:
Using Impact
Due Diligence toInform Ongoing
Assessmentsof Impact

PAC I F I C C O MMUNI T Y VE NTURESIDB INVEST IS THE PRIVATE INVESTMENT ARM OF THE
INTER-AMERICAN DEVELOPMENT BANK AND HAS A
PRESENCE IN 28 COUNTRIES.
IDB Invest developed the Developmental Effectiveness Learning Tracking
and Assessment (DELTA) framework to guide impact due diligence aswell as its Developmental Effectiveness Analytics (DEA) system. The
DEA system, uses a consistent evaluation framework across the life ofan investment that enables IDB Invest to systematically assess projectand portfolio progress towards expected impact results, identify areas
where additional support is needed, and facilitate learning based onorganizational experience.

The Impact Due Diligence Guide 78

US I NG I M PAC T D U E D I L I GE NC E TO I NFO R M D E C I S I O N-M A KI NG

CASE STUDYUsing Impact Due Diligence
to Inform Post-Investment
Evaluations of Impact

2.5

Investors should regularly use their impact assessment tools employed during due
diligence to determine whether expected impacts have been achieved, which canbe complemented by post-investment IMM and third-party evaluations of impact.
Linking pre- and post-investment IMM
processes allows investors to test
the accuracy of impact due diligenceapproaches, empowering them to improve how
they assess expected impact as well as revisit theirimpact goals or theory of change. This empowers theinvestor and the investee to test their assumptions,
identify risks and course-correct if necessary,
increasing the likelihood that significant positive
impact will be achieved.

PAC I F I C C O MMUNI T Y VE NTURES

Further, by linking impact due diligence to postinvestment evaluations, investors can ensure thatthey are appropriately incentivizing staff to pursue
positive impact. By assessing investment staff’s
performance not only by analyzing the expected
impact of their investments, but also by assessing
the ongoing impact performance of the investments,
investors 1) increase the likelihood that they will
actively seek to improve investees’ impact over thelife of their investment and 2) decrease the risk that
staff will overinflate expected impact.

The Impact Due Diligence Guide 79

USING IMPACT DUE DILIGENCE TO INFORM POST-INVESTMENT EVALUATIONS OF IMPACT

IMPLEM ENTING A SYST E M AT I C A PPROAC H TO I M PACT DU E DI L I G E N C E

CASE STUDYWITH A COMMITTED PORTFOLIO OF OVER $57 BILLION AS OF THE
END OF 2018, THE INTERNATIONAL FINANCE CORPORATION (IFC)IS THE LARGEST GLOBAL DEVELOPMENT INSTITUTION FOCUSEDEXCLUSIVELY ON THE PRIVATE SECTOR IN DEVELOPING COUNTRIES.
In 2017, the IFC started to pilot an impact due diligence tool called the
Anticipated Impact Measurement and Monitoring (AIMM) system. The
system evaluates a project’s anticipated impact along two dimensions:əə PROJECT OUTCOMES: These refer to a project’s direct effects on

stakeholders (including employees, customers, suppliers, government,
and the community); the direct, indirect, and induced effects on theeconomy and society overall; and the effects on the environment.
əə MARKET OUTCOMES: These refer to a project’s ability to catalyze

systemic changes that go beyond those effects brought about by
the project itself.
The second “M” stands for “monitoring,” an essential component of
the AIMM system. Each development outcome claim in IFC projects is
explicitly tied to one or more monitoring indicators, regularly tracked
during portfolio supervision. By tracking these indicators, the AIMM
system links project ratings with real-time results and measurementfindings. There is also a structural link between front-end diagnostics
and ex-post evaluation functions.
The IFC IMM system thus connects (1) diagnostics to (2) ex-ante project
selection/scoring, which is tied to (3) results measurement during
portfolio supervision and, ultimately, to (4) ex-post evaluation.

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 80

USING IMPACT DUE DILIGENCE TO INFORM POST-INVESTMENT EVALUATIONS OF IMPACT

The IFC's AIMM
system links
a project's
anticipated impact
with ongoing results
measurement andex-post evaluation.

Conclusion

By distilling our experience with impact due diligence and drawing upon the practicesof leading impact investors, our aim is to encourage readers to give formal impact
due diligence a try.
Whether your organization is new to impact
management or is an experienced practitioner
seeking to adopt emerging best practices in IMM,
we hope this report contains useful resources thatempower you to more efficiently, accurately andsystematically assess expected impact—thereby
strengthening your ability to achieve your goals
and positively influence the world.

PAC I F I C C O MMUNI T Y VE NTURES

We ask that readers not be daunted by the diversity
and complexity of approaches taken to assess
anticipated impact. Rather than seeking to implement
all approaches and practices surfaced in this report,
investors should focus on incremental improvements
to their impact due diligence and reference thesections most relevant to them. In so doing, impact
investors will realize our collective vision of building
a sustainable financial industry that meaningfully
tackles, rather than contributes to, the most criticalissues we face today.

The Impact Due Diligence Guide 81

APPENDIX ARESEARCH METHODOLOGYThis guide has been informed by extensive desk
research on best practices in impact due diligence;
38 interviews with leading practitioners, researchers,
and consultants; and the PCV team’s experiencedeveloping impact due diligence systems for clientsand PCV’s own loan fund.

Based on this review, PCV created a list ofpractitioners and advisors engaged in impact due
diligence for the interview phase; the IMP and theGIIN also provided input to the list of potential
interviewees. Interviews took place from August
to October 2018 and were 60 minutes in length.

During the desk research phase, PCV examined
nearly 50 organizations, including investors
and advisors, to understand practices they had
developed on impact due diligence.

INTERVIEWEES
NAME

ROLE

ORGANIZATION

Abigail Rotheroe

Head of Impact

Project SnowballAbiskar Shrestha

Investment Manager

MicroVest

Anna Kanze

Chief Operating Officer

Grassroots Capital Management

Ashley Elliot

Global Liaison

GIIN East Africa

Barbara Magnoni

President

EA Consultants

Belissa Rojas

Strategy and Monitoring Sr. Specialist,
Development Effectiveness Division

IDB Invest

Ben Carpenter

CEO

Social Value UK

Brendan Maher

Vice President of Integrated Capitals

Heron Foundation

Bryan Locascio

Senior Associate

Tideline

Caitlin Rosser

Senior Officer, Impact and Communications

Calvert Impact Capital

Catherine Banat

Director of Responsible Investing

RBC Global Asset Management

Catherine Dun Rappaport

Vice President of Learning andImpact Measurement

BlueHub CapitalCharly Kleissner

Co-FounderToniic and KL Felicitas Foundation

Christian Rosenholm

Senior Professional

International Finance Corporation

Christina Gotfredson

Impact Manager

Gary Community Investments

Conor Sullivan

Associate

Bridges Fund Management

David Pritchard

President, Board of Directors

Social Value US / Independent Consultant

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 82

INTERVIEWEES
NAME

ROLE

ORGANIZATIONDavid Sand

Chief Impact Strategiest

Community Capital Management

Dean Hand

Alternative Investments Manager

Ashburton Investments

Elizabeth Teague

Senior Social and Environmental
Performance Manager

Root Capital

Eric RicePortfolio Manager, Global Impact Portfolio

Wellington Management

Erica Barbosa Vargas

Director, Solutions Finance

McConnell Foundation

Francois de Borchgrave

Managing Director

KOIS Invest

Genevieve Edens

Senior Manager, Social Impact

WaterEquity

Jean Chorazyczewski

Program Director, Business Assistance

Fair Food Network & Michigan Good Food Fund

Jeremy Nicholls

Founder and Former CEO

Social Value UK

Jurgen Hammer

Chief Investment Officer and Headof Social Performance Management

Grameen Credit Agricole MicrofinanceFoundation

Karim Harji

Programme Director

Oxford Impact Measurement Programme,Saïd Business School, University of Oxford

Luke ApicellaManager, Prudential Impact Investments

Prudential Financial

Mariah Collins

Manager

BridgespanMatt Barry

Chief Impact Officer

Gary Community Investments

Mike McCreless

Investor Content Lead, Formerly SeniorDirector of Strategy and Impact

The Impact Management Project,formerly Root Capital

Namrita Kapur

Managing Director, DEF+Business

Environmental Defense Fund

Oscar Benitez

ManagerThird Sector Capital Partners

Paul Herman

CEO and Founder

HIP Investor

Pieter Oostlander

Founding Partner

Shaerpa

Saheba Sahni

Senior Investment Associate

Tufts University Investment Office

Sara Olsen

Founder and CEO

SVT Group

Stephanie Cohn Rupp

Managing Director

Tiedemann Advisors

Sydney Bolger

Associate

Tiedemann Advisors

Sophie Mechin

Development Manager, Solutions Finance

McConnell Foundation

Tamar Pashtan

Head of ESG

Vital Capital

Tanay Tatum-Edwards

Business Development Associate

MicroVest

Tom Adams

Chief Impact Officer

Acumen FundTony Berkley

Vice President, Strategy and Impact

Prudential Financial

Yulia Romaschenko

Director of Programmes and Donor Relations

Charities Aid Foundation Russia

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 83

APPENDIX ARESEARCH METHODOLOGY (continued)				
CHARACTERISTICS OF INTERVIEWEESNUMBER OF INTERVIEWEES

37%

63%

Investors vs.
Advisors(n=38)

Advisors

Investors

35%

Of the 38 interviewees,
24 (or 63%) were investors;
14 (or 37%) were advisors.
Advisors included consultants
or members of field-building
organizations.

INVESTORS BY ASSET CLASS(Percent of Respondents*)

33%

30%

Of the 24 investors interviewed,
respondents favored private
debt and private equity/venture
capital (61%).

28%

25%
20%

* Note: Investors may allocate
to multiple asset classes(24 investors interviewed)

15%
10%

9%

7%

5%

7%
4%

8%

4%

0%
PublicEquityFixedIncomePAC I F I C C O MMUNI T Y VE NTURES

PrivateEquityand VCPrivate
Debt

Real Infrastructure Funds
EstateOther

The Impact Due Diligence Guide 84

INVESTORS BY GEOGRAPHIC ALLOCATION(Percent of Respondents*)

62% of investors invest in emerging markets. Of all regions, Latin America and the Caribbean
and Sub-Saharan Africa are the two most common regions receiving investment. The U.S. andCanada, South and Southeast Asia, and other (including Global) were not far behind.
* Note: Investors may allocate to multiple geographies (24 investors interviewed)

11%

8%

United States
and Canada

Eastern Europe
and Central Asia

8%

10%

Middle East andNorth Africa

10%

Other (includes
globally-focusedinvestments

14%

14%

Latin America
and Caribbean

8%

Western, Northern,
and Southern Europe

South Asia

5%

East Asia

9%Southeast Asia

3%

Sub-SaharanAfricaOceania

INTERVIEWEE HEADQUARTERS LOCATIONIMPACT-ONLY & CONVENTIONAL INVESTORS

Most interviewees (27 of 38) were part of organizations
headquartered in North America (the U.S. andCanada). Western, Northern, and Southern Europe
came in second with eight interviewees.

Of the 24 investors, 79% exclusively make impact
investments while 21% make both impact andconventional investments.

No single location

1

27

United States
and Canada

PAC I F I C C O MMUNI T Y VE NTURES

21%

Impact andconventional
investments

8

Western, Northernand Southern
Europe1

1

Sub-SaharanAfricaEastern Europe& Central Asia

(n=24)

79%

Impactinvestments only

The Impact Due Diligence Guide 85

APPENDIX BDATA RESOURCES
As noted throughout the guide, location-based
datasets can be valuable resources for impact
due diligence, as they can be used to bolster the
rigor of assessments without requiring additional
information from investees. While PolicyMap is an
excellent resource for U.S. location-based datasets,
it requires a paid subscription.
In this section, we highlight a selection of free datasetsthat can be incorporated into impact due diligence.
While this is not an exhaustive list of resources, it
is intended to help investors begin to think about

NAME

Other types of external assessment tools can feed into
impact due diligence assessments. One commonly
cited resource is the Poverty Probability Index, which
is a poverty measurement tool for enterprises witha mission to serve the poor. The tool is most usefulfor investors with an international focus and uses 10questions about a household’s characteristics andasset ownership to compute the probability that thehousehold is living below the poverty line.

GEOGRAPHYDATA LOOKUP METHOD

Comprehensive (includes
information on people,
government, economy, geography,
communications, transportation,
military, and transnational issues)

International(countrylevel data)

Select the country from thedropdown at the upper right andnavigate to the relevant category

Opportunity Index scores forhousing stability, education,
health and well-being,
economic security, and mobility

United States(census tractlevel data)

Manual lookup of individual
addresses (enter address ina search bar and select “GetEnterprise Opportunity Report”
when bubble pops up)

FFIEC Geocoding

Census data (tract income level,
median family income, % below
poverty line, % minority, etc.)

United States(census tractlevel data)

Manual lookup of individual
addresses (enter address ina search bar and expand thecensus demographics box to show
relevant census tract information)

Health Resources& Services
Administration

Various healthcare-related
data points, including status
as a medically underserved
area/population

United States(census tractlevel data)

Manual lookup of individual
addresses (enter address in asearch bar and check the relevant
layers you would like to see todetermine classification)

Living wage

United States(county level data)

Manual Lookup of Regional
Benchmarks

CIA World
Factbook

Enterprise's
Opportunity 360

MIT Living Wage
Calculator

PAC I F I C C O MMUNI T Y VE NTURES

FOCUS

the types of external datasets they can leverage tostrengthen their assessments of anticipated impact.

The Impact Due Diligence Guide 86

NAME

FOCUS

GEOGRAPHYDATA LOOKUP METHOD

Opportunity Zone status

United States

Manual lookup of individual
addresses (enter address in a map
to zoom to the appropriate region
and then look at the key)

Ramsar Sites
Information
Services

Wetland type, ecosystemservices, statutory designations(e.g., UNESCO Biosphere
Reserve, World Heritage Site),Management Plan, Threats

International(worldwide
coverage)

Select relevant layer and zoom
to relevant portion of map OR
navigate to the “Exports” tab todownload a data fileSpotlight on
Poverty andOpportunity

Poverty rate, child poverty rate,senior poverty rate, extreme
poverty rate

United States(state level data)

Select a state to see key statistics

United Nations
Development
Program
SDG Impact

Reports on SDG-enabling
investment opportunities andconditions in target markets
and sectors

170 countries

To be determined; this resource isstill in the process of development

United Nations
Environment
World
Conservation
Monitoring
Center's
Protected Planet

World Database on Protected
Areas (WDPA), Marine Protected
Areas, Indigenous Peoples
and Community Conserved
Areas and Territories (ICCA),
Protected Area Management
Evaluations (PAME)International(worldwide
coverage)

Zoom to the relevant portion of the
map to identify protected areas

United States
Departmentof Agriculture
EconomicResearch Service

Food deserts

United States(census tractlevel data)

Manual lookup of individual
addresses (enter address in a
map to zoom to the appropriate
region and then look at the key)

Agriculture & Rural Development,
Aid Effectiveness, Climate
Change, Economy & Growth,
Education, Energy & Mining,
Environment, External Debt,
Financial Sector, Gender, Health,Insurance, Poverty, Private
Sector, Public Sector, Science &Technology, Social Development,
Social Protection & Labor, Trade,
Urban Development

International(countrylevel data)

Navigate by country or indicatorto access relevant data

Opportunity
Zones Map

World BankPAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 87

APPENDIX CQUESTIONS TO GUIDE ONGOING REFINEMENTOF APPROACHES TO IMPACT DUE DILIGENCE
PROCESSES
SOLICITINGFEEDBACKFROM KEYSTAKEHOLDERSRELEVANTSTAKEHOLDEROR TOPIC
Investment team

KEY QUESTIONSəə What elements of the organization’s approach to impact due diligence
are working well? What elements have been challenging?
əə Are there important considerations that are not reflected in theorganization’s existing impact due diligence approach? If so, what?

Investeesəə Were the impact-focused questions asked of you during due diligence
relevant? Were there impact-focused questions you felt you shouldhave been asked but were not?
əə Has the impact due diligence process provided any value to yourorganization? If so, what?

REVIEWING
APPROACH
ANNUALLY

Staffingəə Are there opportunities to redistribute responsibilities to reduce theburden on the investment team? For example, are there questions
impact analysts could pre-populate using existing data sets before
the investment team completes the remainder of the impact due
diligence assessments?

Scopeəə Does the existing approach apply the appropriate level of rigor given
the investor and investees’ capacity constraints?

Quantitative Indicators,
Questions, and Weights

əə Are all the indicators and questions included relevant given the mostrecent understanding of the organization’s impact?
əə Are there new indicators that should be added?
əə Do the indicator weights still accurately reflect the organization’s
priorities? If not, how should they be revised?

Quantitative Scoring
Guidelines

əə Are there any scoring guidelines that would benefit from clarification?

Data Inputs

əə Does the data included in the tool represent the latest releaseavailable for that dataset?

əə Are there any scoring guidelines that should be updated based on a
deepened understanding of the organization’s impact?

əə Are there any newly released datasets that should be incorporated
to strengthen the tool?

PAC I F I C C O MMUNI T Y VE NTURESThe Impact Due Diligence Guide 88

PROCESSESREVIEWING
APPROACH
ANNUALLYRELEVANTSTAKEHOLDEROR TOPIC
Next StepsPAC I F I C C O MMUNI T Y VE NTURESəə Are there opportunities to implement new tools and/or processes
to strengthen the organization’s approach to impact due diligence?
əə Are there opportunities to use the results of impact due diligenceassessments in different ways?

(continued)

REVIEWING
APPROACH IN
CONCERT WITH
ANY MAJOR
ORGANIZATIONALUPDATESKEY QUESTIONS

Organizational Structureəə Has the organization added new capacity in any areas? If so, how
can this additional capacity, and or the new skills/resources thatcome with this capacity, be leveraged to strengthen the organization’s
impact due diligence?
əə Where might there be opportunities to shift impact due diligence
responsibilities to increase efficacy?

Impact Modeləə Do the organization’s impact due diligence processes and tools stillalign with the organization’s strategies for generating impact? If not,what needs to change?

Impact Objectives

əə Do the organization’s impact due diligence processes and tools still
accurately reflect the organization’s impact objectives? If not, whatneeds to change?

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APPENDIX DCOMMONLY USED IMPACT DUEDILIGENCE QUESTIONS
The following table reflects commonly used impact due diligence questions thatwere cited by the 38 investors, researchers, and consultants interviewed for this research.

IMP ALIGNMENTWHATIMPACT DUE DILIGENCE QUESTIONSəə What types of activities, products, or services does the investee engage in or offer?
ǁǁ E.g., for a food-related business, do they engage in production, collection, aggregation,
and/or processing?
ǁǁ E.g., for financial service providers, do they offer loan, deposits, compulsory insurance,
voluntary insurance, or other financial services?
əə What, if any, is the impact on the environment from the supply chain, business operations,and product or service—positive and negative, intended and unintended?
əə What, if any, is the impact on the community from the supply chain, business operations,and product or service—positive and negative, intended and unintended?
əə What, if any, is the impact on the community from this product or service—positive andnegative, intended and unintended?

WHOəə Who are the target beneficiaries? Describe them according to the following characteristic
categories: socioeconomics, demographics, etc. (including male/female, urban/rural, etc.)
əə What is the target environment? Describe it according to the following characteristic
categories: habitat, plant/animal species, geography, conservation status, etc.
əə Where is the product or service sold? Is it sold in a regional, national, or international/
global market?

HOW MUCH

əə How many permanent employees are at the investee organization, according to designateddemographic and socioeconomic categories?
əə How many people does the investee organization serve, according to designateddemographic and socioeconomic categories? By product or service? How many are active?
əə How long have customers been using the product or service?
əə What is the degree of change, if any, compared to the baseline experienced by thecustomers from the investee’s product or service?
əə Over what time period did the change occur from the investee’s product or service?

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IMP ALIGNMENTCONTRIBUTION

IMPACT DUE DILIGENCE QUESTIONSəə Signal that impact matters: does the investor factor in the impact of an enterprise—such that, if all investors did the same, it would ultimately lead to a ‘pricing in’ of effects
on people and planet by the capital markets?
əə Engage actively: does the investor use expertise and networks to improve theenvironmental/societal performance of businesses?
əə Grow new or undersupplied capital markets: does the investor anchor or participate
in new or previously overlooked opportunities that offer an attractive impact andfinancial opportunity?
əə Provide flexible capital: does the investor recognize that certain types ofenterprises will require acceptance of lower risk-adjusted return in order togenerate certain kinds of impact?
əə How, if at all, will the investment enable the investee to attract additional investment(e.g., from conventional investors)?
əə Is the investor expanding access to capital by providing financing to an investee without
comparable alternatives?
əə Is the investor’s financing critical to the investee’s financial viability?
əə Is there any non-financial support that the investee is requesting that the investor ispositioned to offer (e.g., technical assistance)?
əə Have investors conducted shareholder engagement in the past or demonstrated awillingness to do so in the future if needed?
əə Is the investee providing a valued product or service? What, if any, is the need for thisproduct or service in the market? What would the customer or user do without thisproduct and/or service?
əə To what extent can the investees’ intended beneficiaries (e.g., customers or employees)
access similar products, services, or employment opportunities?
əə What, if any, is the investee’s impact on the sector in which they operate?
əə What, if any, change(s) does the customer or employee see from the investee’s productor service? E.g., for employment, what is the wage of the next best employment option(or, is this not the best employment option)?
əə What, if any, evidence does the investee have of its expected outcomes?
əə What is the investee’s track record of delivering their expected outcomes?

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IMP ALIGNMENTRISKIMPACT DUE DILIGENCE QUESTIONSəə Does the investee collect and use data to understand and manage the performance of
their enterprise (e.g., do they have an IMM system)?
əə Does the investee incorporate customer or user voice in their systems or processes?
əə Is the product or service and its delivery channels designed to meet the users’ needs
and preferences?
əə How does the product or service impact the community and/or the environment?
əə Has the investee codified their impact goals (e.g., via an impact thesis, logic model,
theory of change, or similar framework)?
əə Is impact embedded into the business model of the investee? E.g., will impact increaseas the enterprise scales?
əə How well does the potential investee align with the investor’s impact goals?
əə What external factors might disrupt the delivery of the expected impact (e.g., political,
social, economic, reputation, etc.)?
əə Are employees, customers and users responsibly treated?
əə How does the investee balance social and financial performance?
əə Do staff at all levels support the mission of the investee? E.g., does the board andmanagement commit to the impact goals?
əə How might the impact differ than is anticipated? Examples below.
ǁǁ If an investee aims to create jobs, will they also contribute to the loss of an evengreater number of jobs?
ǁǁ Is there a risk of deforestation, soil degradation, water quality concerns, or otherenvironmental risks?
ǁǁ Is there a risk of gentrification and/or displacement?

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APPENDIX EGLOSSARY OF TERMS					Below is a glossary of terms, including organizations and abbreviations,used throughout the guide along with their definition.

TERM

DEFINITION

IMPACT MEASUREMENT
AND MANAGEMENT (IMM)

To make effective impact investments, impact measurement and management must
be practiced post-investment. Investors should identify and consider the positive andnegative effects one’s enterprise’s actions have on people and the planet and then figureout ways to mitigate the negative and maximize the positive in alignment with one’s goals.
More guidance is provided by the GIIN, among other organizations.

STAKEHOLDER

Persons or groups directly or indirectly affected by an intervention, including those who
may have stakes in a project and/or the ability to influence its outcome, either positively
or negatively.

IMPACT MANAGEMENTPROJECT (IMP)

Facilitates a global network of standard-setting organizations to coordinate efforts
that can accelerate widespread impact measurement and management; through thiswork, they developed the five dimensions of impact.

GLOBAL IMPACT INVESTINGNETWORK (GIIN)

The global champion of impact investing, dedicated to increasing its scale andeffectiveness around the world. The GIIN convenes impact investors to facilitate
knowledge exchange, highlight innovative investment approaches, build the evidencebase for the industry, and produce valuable tools and resources.

LOGIC MODEL

Graphic depiction (road map) that presents the shared relationships among theresources, activities, outputs, outcomes, and impact for a program. It depicts therelationship between a program’s activities and its intended effects.

THEORY OF CHANGE

Graphic depiction (road map) of how and why a desired change is expected to happen ina particular context. It maps out the resources, activities, outputs, outcomes, and impact
for a program. It can include what happens both inside and outside a program’s “sphereof accountability,” as well.

INDICATOR

Unit of measure, either qualitative or quantitative, that indicates the state orlevel of something.

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