Impact investing is a new field, and track records are still short and limited in number. This means that in order to really generate positive impact, an investor has to be willing to spend additional time assessing and learning about the impact potential and actual social outcomes of the investee. This includes checking the evidence base of the solution.
In many sectors there seems to be a huge market and impact potential – on the surface. If you dig a little deeper, however, you might see that the impact is conditional on a number of factors, such as how the product or service is actually used, whether it is affordable for the target group, or if it fits into the cultural context.
An impact investor interested in generating impact will take the necessary time to assess these kinds of issues. And he or she will also ask questions such as: (how) does my investment and engagement make a difference to this specific case? This is called “additionality”.

This question could also be phrased: What should be different in impact investing? The answer is that impact plays an explicit role in investment decision-making and portfolio management. Instead of only factoring in financial elements when assessing a potential investee, impact investors also look at how much positive impact can be expected from the investment target.
Post investment, impact investors will – parallel to financial performance – track the impact performance of their portfolio if they take the task of managing impact seriously.

This is probably the biggest question posed in the impact investing space. While some in the industry would claim that there need not be any trade-off between impact and financial returns, experience shows that the answer is not that easy.
There are sectors, business models and activities where social impact readily joins profitability. But many highly effective and efficient solutions evolve at points along the risk/return spectrum which are not (yet) in line with the mainstream capital market. Thus, numerous high-impact social enterprises fail to reach profitability and scale to attract investment and grow.