Impact Investing Concept Card Template (Theory of Change, Blended Finance)

Impact Investing Concept Card: [Your name, elective or fund, and date]

An elective-level concept card for social enterprise and impact investing: how to state a theory of change, measure and attribute impact, and structure blended finance so that concessional capital draws in commercial investors. It is for MBA students in a social enterprise, sustainable finance or impact investing elective and for candidates preparing for roles at impact funds, development finance institutions, foundations and sustainability teams. It builds on mba/mba-stakeholder-esg-card (stakeholders, materiality and ESG reporting) and links to nonprofit/theory-of-change for the full logic model. Worked example A solves the impact and the capital structure of the Okavell Solar Access Fund, a fictional blended fund; Worked example B is a half-solved stress case with weaker attribution and higher losses; Exercise C asks for a monetised outcome ratio and a theory of change of your own. Framework basis: the five dimensions of impact from the Impact Management Project (now the Impact Management Platform), the Operating Principles for Impact Management (Impact Principles), the IRIS+ system of the Global Impact Investing Network (GIIN), and Convergence's blended finance archetypes; academic basis: Brest and Born (2013), Hart and Zingales (2017), Kolbel, Heeb, Paetzold and Busch (2020) and Barber, Morse and Yasuda (2021), written up in original words with fictional numbers. Replace every [bracketed] value and every row marked Example. This is a learning aid, not investment, legal or financial advice.

Document control

Contents

• When to use it
• The idea in plain language
• Formulas and notation
• Assumptions and limits
• Frameworks and dated facts
• How funds, foundations and investees use the card
• Worked example A (fully solved): Okavell Solar Access Fund
• Worked example B (half solved): weaker attribution and higher losses
• Exercise C (unsolved): outcome value and your own theory of change
• Connections to other cards
• Common mistakes and misconceptions
• Self-test questions
• My notes and next steps
• Sources and further reading
• Answer key

When to use it

Use this card when:

• a fund, social enterprise or project claims social or environmental impact and you must judge whether the claim is specific, measurable and attributable to the capital being raised;
• a foundation or development finance institution asks how much concessional capital a deal needs, and what each unit of impact costs in concessions;
• you are building a fund's impact thesis, its theory of change and a small set of metrics for an investment committee or a limited partner report;
• you compare impact investing with ESG integration and engagement, and need to say which mechanism changes outcomes in the real world and which only changes the portfolio.

Do not use the card to certify a product's sustainability label or regulatory category; that needs the current official rules and qualified advice.

The idea in plain language

Impact investing means investing with the intention of causing a positive, measurable social or environmental outcome alongside a financial return. It differs from ESG integration, which uses environmental, social and governance information to improve risk and return, and from exclusion, which avoids harmful sectors. Hart and Zingales (2017) give a useful justification: many investors care about more than money, and if social goals cannot be fully separated from the company's activities, firms should maximise shareholder welfare, not only market value.

A theory of change is the chain that links the money to the outcome: inputs (capital), activities (loans to solar distributors), outputs (systems sold), outcomes (households with clean light, lower spending on kerosene, fewer emissions) and impact (lasting change in well-being). Each arrow in the chain is an assumption that can fail. The logic model in nonprofit/theory-of-change is the long form; the card uses the short form.

Two questions decide whether a claim is credible. The first is measurement: did the outcome happen, for whom, and how much? The five dimensions of impact, developed through the Impact Management Project and now kept by the Impact Management Platform, give a shared vocabulary: What outcome, Who experiences it, How Much (scale, depth, duration), the enterprise's and investor's Contribution, and the Risk that impact differs from what was expected. The second is attribution: how much of the outcome would have happened anyway (deadweight), and what share of the change is due to this investor rather than to grants, other investors or the market? Brest and Born (2013) argue that an investor creates impact only when the investment is additional, meaning it increases the quantity or quality of the outcome beyond what would otherwise occur, for example by providing capital that markets will not provide on the same terms, or by adding non-financial support.

Kolbel, Heeb, Paetzold and Busch (2020) review the mechanisms by which investors can affect companies and find that shareholder engagement has stronger empirical support than capital allocation in liquid markets, where one investor's purchase or sale rarely changes a company's cost of capital. This is why much impact investing happens in private markets, where the investor supplies capital the company could not otherwise raise. Barber, Morse and Yasuda (2021) show that investors in impact venture funds accept lower expected financial returns, which is evidence that they value the non-financial outcome.

Blended finance uses public or philanthropic capital on concessional terms to make a deal acceptable to commercial investors. Convergence names four archetypes: concessional capital in the capital structure (for example a first-loss tranche), guarantees or risk insurance on below-market terms, grant-funded technical assistance, and design-stage grants. The concession is a cost to the concessional investor. The right question is how much impact the concession buys, and whether the same concession could buy more impact elsewhere.

Formulas and notation

Attributable outcome, from a gross outcome $Y$, deadweight $d$, displacement $\delta$ and the investor's contribution share $c$:

Fund cash at the end of a term of $T$ years with a bullet portfolio $F$, annual net portfolio yield $g$ (after fund costs) and cumulative principal loss rate $\ell$:

Senior tranche entitlement with simple annual coupon $r_s$, and the waterfall:

Largest loss rate the senior tranche can absorb with no shortfall:

Price of the concession: present value, at the market return $k$ for first-loss risk, of the gap between what a market investor would require and what the first-loss tranche expects to receive; then the cost per attributable outcome:

Excel: attributable outcome =Gross*(1-Deadweight)*(1-Displacement)*Contribution; end cash =Fund*(1-Loss)+Fund*Net_yield*Term; senior =MIN(Cash,Senior*(1+Coupon*Term)); first loss =Cash-Senior_paid; concession =(FL*(1+k)^Term-Expected_FL)/(1+k)^Term. Use =SUMPRODUCT(Probabilities,FL_cash_by_scenario) for the expected first-loss cash.

Assumptions and limits

• Outcome factors are assumptions. Households per system, emissions avoided and the duration of benefits differ by country, product and fuel used before. Use the best local evidence you can find and show a range.
• Attribution is a judgement. There is no single correct deadweight or contribution share. Document the reasoning (comparison groups, market data, interviews) and test the result against alternative values.
• No displacement in the base case. If the fund's distributors simply take customers from other solar sellers, displacement is high and attributable impact falls.
• Bullet loans and simple coupons. Real funds amortise, reinvest and draw capital over time. The simple waterfall keeps the arithmetic visible; a real fund model follows mba/mba-pe-fund-economics-card.
• No currency risk. Many impact loans are made in local currency and funded in hard currency. Currency depreciation can turn a performing portfolio into a loss; blended structures often add a currency hedge or a guarantee for this reason.
• Market return for first-loss risk is an assumption. The concession estimate depends heavily on $k$; show it at more than one rate.
• Impact and financial risk are linked. A distributor that defaults also stops serving customers, so loss scenarios usually reduce outcomes too. The base example keeps them separate for clarity.

Frameworks and dated facts

Impact claims used in marketing are regulated in several markets: the EU disclosure rules above, the UK Financial Conduct Authority's sustainability disclosure and labelling regime, and general consumer and securities rules against misleading claims. Check the current official text for any product you market. This is not legal advice.

How funds, foundations and investees use the card

Impact management runs through the whole deal cycle, as the Impact Principles stages show. The sequence below is the one Worked example A follows.

Worked example A (fully solved): Okavell Solar Access Fund

The Okavell Solar Access Fund is a fictional USD 40m fund that makes four-year loans to pay-as-you-go solar distributors in off-grid regions. Philanthropic investors provide an 8m first-loss tranche that targets no fixed return and takes the residual; commercial investors provide a 32m senior tranche paid a 7% simple annual coupon. All figures are Example assumptions, in USD.

Step 1: theory of change

Key assumptions on each arrow: distributors use the loans to finance systems rather than refinance old debt; customers keep paying and the systems keep working for five years; households would otherwise use kerosene.

Step 2: gross and attributable outcomes

Example factors: average loan per system USD 250; five people per household; 0.15 tonnes of carbon dioxide avoided per system per year for five years; deadweight 30% (households that would have bought a system without the fund's lending); no displacement; contribution share 60% (the rest of the change is credited to distributor equity and grant-funded consumer subsidies).

The five dimensions applied: What: access to clean light and lower spending on fuel. Who: off-grid households, many on low incomes, who would not otherwise get credit. How Much: 160,000 households, for about five years, with a depth that depends on fuel savings. Contribution: about 60% of the change net of deadweight, because the fund provides credit on terms that commercial lenders in the example market do not offer. Risk: system failure, customers falling behind on payments, and distributor default.

Step 3: capital stack and waterfall

Example inputs: portfolio yield 12% a year, fund costs 2% a year, so net yield 10%; four-year term; principal losses recognised at the end of the term; senior entitlement 32 x (1 + 7% x 4) = 40.96m.

End cash at 15% loss: =40*(1-15%)+40*10%*4 = 50.00; first loss =50-40.96 = 9.04; IRR =(9.04/8)^(1/4)-1 = 3.1%. The senior tranche is paid in full in every scenario: it absorbs no shortfall until losses exceed =(40+16-40.96)/40 = 37.6% of the portfolio, and its IRR on annual coupons is 7.0% (=IRR({-32,2.24,2.24,2.24,34.24})).

Step 4: expected returns and the price of the concession

Example scenario probabilities: 5% loss with probability 0.50, 15% with 0.35, 30% with 0.15, so the expected loss is 12.25%.

Without blending, a single-tranche fund offers an expected 6.3% with exposure to the full range of losses, which a commercial investor would not accept for this risk. With blending, the senior investor receives 7% and is protected up to a 37.6% loss, while the philanthropic investor expects 6.1% for bearing first-loss risk that the example prices at 15%. The concession is worth about 2.20m in present value, or about USD 33 per attributable household. That is the number to compare with a direct grant programme or another fund.

Worked example B (half solved): weaker attribution and higher losses

Same fund. Field research shows that more households would have bought systems anyway (deadweight 45%) and that grant-funded subsidies did more of the work than assumed (contribution share 40%). Separately, a stress scenario models a 40% cumulative loss.

Questions to answer: by how much does the cost per attributable household rise? Is the fund still good value against a grant programme that reaches an attributable household for USD 50? What would you change in the structure if losses of 40% were plausible? [ ]

Exercise C (unsolved): outcome value and your own theory of change

C1. Field data suggest that each attributable household saves USD 60 a year on kerosene and phone charging for five years. Discount the savings at 8% a year. What is the present value per household, the total for the 67,200 attributable households of Worked example A, and the ratio of that total to the 2.20m concession? Explain why this ratio is not the fund's "social return on investment" without further adjustments.

C2. Choose an impact theme (for example affordable housing, financial inclusion or primary health care). Draw a theory of change with inputs, activities, outputs, outcomes and impact, mark the two weakest arrows, and choose five metrics, one for each of the five dimensions. Name the IRIS+ theme you would search for metrics, without inventing metric identifiers.

C3. In one paragraph, explain to a commercial investor why the senior tranche in Worked example A is protected, and to the foundation why its first-loss tranche is still a good use of philanthropic money.

Connections to other cards

Common mistakes and misconceptions

1. Reporting outputs as impact. Systems sold or loans disbursed are outputs; the outcome is what changed for the household.
2. Claiming the whole outcome. Without deadweight and contribution, every investor in the chain claims the same household, and totals across funds exceed reality.
3. Ignoring negative outcomes. Over-indebtedness, repossessions and product failures belong in the Risk dimension and in public reporting.
4. Confusing ESG integration with impact. Better risk management of a listed portfolio does not by itself change outcomes in the real world (Kolbel et al. 2020).
5. Assuming concessional capital is free. The concession has a value that can be measured and compared with other uses of the same money.
6. Pricing first-loss risk at the senior rate. First-loss capital bears the most risk; its required return is much higher than the senior coupon.
7. Using a single loss scenario. The value of the first-loss tranche depends on the whole distribution of losses.
8. Inventing metric identifiers or framework wording. Cite IRIS+ metrics from the current catalogue and describe frameworks in your own words.
9. Ignoring what happens after exit. Impact that stops when the investor leaves is weaker than impact that lasts.
10. Treating a regulatory label as proof of impact. Disclosure categories describe a product's approach; they do not measure its outcomes.

Self-test questions

1. Name the five dimensions of impact and give one question for each.
2. Define deadweight, displacement and contribution share.
3. Compute the attributable households in Worked example A and show the Excel formula.
4. Why is the senior tranche paid in full in all three loss scenarios?
5. What is the largest cumulative loss the senior tranche can absorb with no shortfall?
6. What is the expected first-loss IRR, and why is it below the 15% market rate assumed?
7. What does the concession of 2.20m represent?
8. According to Brest and Born (2013), when does an investment create impact?
9. Which mechanism of investor impact has the strongest empirical support in Kolbel et al. (2020)?
10. Name Convergence's four blended finance archetypes.
11. Name the five stages of the Impact Principles.
12. What was the status of the EU SFDR revision when the card was checked?

My notes and next steps

Sources and further reading

Primary works:

• Brest, P. and Born, K. (2013). When can impact investing create real impact? Stanford Social Innovation Review.
• Hart, O. and Zingales, L. (2017). Companies should maximize shareholder welfare not market value. Journal of Law, Finance, and Accounting, 2(2), 247-275.
• Kolbel, J. F., Heeb, F., Paetzold, F. and Busch, T. (2020). Can sustainable investing save the world? Reviewing the mechanisms of investor impact. Organization and Environment, 33(4), 554-574.
• Barber, B. M., Morse, A. and Yasuda, A. (2021). Impact investing. Journal of Financial Economics, 139(1), 162-185.

Frameworks and dated facts (checked 2026-10-30):

• Impact Management Platform, https://impactmanagementplatform.org (five dimensions of impact; site blocked automated access, check directly).
• Impact Principles, The 9 Principles, https://www.impactprinciples.org/9-principles.
• GIIN, IRIS+ system, https://iris.thegiin.org (check the current catalogue version).
• GIIN, Sizing the Impact Investing Market 2024, https://thegiin.org (figures reported by secondary sources).
• Convergence, Blended finance, https://www.convergence.finance/blended-finance.
• European Commission, Sustainability-related disclosure in the financial services sector, https://finance.ec.europa.eu/sustainable-finance/disclosures/sustainability-related-disclosure-financial-services-sector_en.

Textbooks (further reading, by name only): Bugg-Levine and Emerson, Impact Investing; Rodin and Brandenburg, The Power of Impact Investing.

Open resource: OpenStax, Principles of Finance (CC BY-NC-SA 4.0), https://openstax.org.

Answer key

Worked example B: attributable households =160000*(1-45%)*40% = 35,200; concession per attributable household =2202422/35200 = USD 62.57, almost double the base case. At a 40% loss, end cash =40*(1-40%)+16 = 40.00; the senior tranche receives 40.00 against an entitlement of 40.96, a shortfall of 0.96; first-loss cash is 0. At USD 62.57 per household, the fund now costs more than the USD 50 grant programme, so the case for the concession rests on the strength of the attribution evidence and on whether the capital is recycled. If 40% losses were plausible, enlarge the first-loss tranche, add a guarantee on part of the senior tranche, or lend in smaller amounts to more distributors to reduce concentration.

Exercise C:

• C1: present value per household =PV(8%,5,-60) = USD 239.56; total =239.56*67200 = USD 16.10m; ratio to the concession =16.10/2.20 = 7.31. It is not a full social return on investment because it counts only one outcome for one stakeholder, uses one discount rate, ignores negative outcomes and the costs borne by households and distributors, and has not been checked against field evidence or verified independently.
• C2: a good answer has one diagram with five levels, marks the weakest arrows (usually the step from output to outcome, and from outcome to lasting impact), and gives one metric per dimension with its unit and source.
• C3: the senior tranche is protected because the first-loss tranche and four years of net income (16m) must be used up before senior principal is touched, so losses up to 37.6% leave it whole. The foundation's tranche still expects to return its capital with a small gain (1.27x) while unlocking 32m of commercial money and about 67,200 attributable households at a concession cost of about USD 33 each.

Self-test:

1. What outcome occurs; Who experiences it; How Much (scale, depth, duration); Contribution of the enterprise and the investor; Risk that impact differs from expectations.
2. Deadweight: the share that would have happened anyway. Displacement: the share that only moved an outcome from someone else. Contribution share: the share of the remaining change due to this investor.
3. =160000*(1-30%)*60% = 67,200.
4. End cash in every scenario (54.00, 50.00, 44.00) exceeds the senior entitlement of 40.96, because the first-loss tranche and the income absorb losses first.
5. =(40+16-40.96)/40 = 37.6%.
6. 6.1%. The philanthropic investor accepts a below-market return; the gap to 15% is the concession.
7. The present value, at the assumed 15% market return for first-loss risk, of the return the philanthropic investor gives up to make the fund acceptable to commercial investors.
8. When it is additional: it increases the quantity or quality of the outcome beyond what would otherwise have happened, for example by providing capital on terms markets will not offer.
9. Shareholder engagement; capital allocation in liquid markets has weaker support.
10. Concessional capital, guarantees and risk insurance, technical assistance funds, design-stage grants.
11. Strategic intent, origination and structuring, portfolio management, impact at exit, independent verification.
12. A Commission proposal of 20 November 2025, with Council and Parliament mandates reported in 2026 and trilogues to follow; not adopted.

Revision history

Standard and licence note

Based on the primary works listed above and on the public descriptions of the five dimensions of impact (Impact Management Platform), the Impact Principles, the GIIN's IRIS+ system and Convergence's blended finance archetypes, checked on 2026-10-30. Frameworks are named and described in original words; no framework text, metric definition or published case is copied. The text, the model, the numbers and the exercises are original, and the Okavell Solar Access Fund and every number in this card are fictional. The template is independent and not affiliated with or endorsed by the GIIN, the Impact Management Platform, the Impact Principles secretariat, Convergence, any regulator, business school or publisher. Check the current version of each framework and the current official text of any disclosure rule before you rely on them. This is not investment, legal or financial advice. Template licence: MIT.