Principle 1: Impact Objectives
The Common & Emerging Practices, a new series of resources from the Impact Principles, aims to capture key insights from notable trends in common practices in implementing the Impact Principles by our Signatories and highlight promising emerging practices and key gaps. By sharing these common and emerging best practices in impact management, we seek to elevate impact practice in the market and ensure that capital is mobilized at scale with integrity to drive meaningful impact outcomes.
The resources related to Common & Emerging Practices will be released in phases through website publication of initial drafts for each of the nine principles in series, followed by draft and final consolidated reports with stakeholder engagement.
Click here to learn more about the Common & Emerging Practices series.
Click here to sign up for ongoing updates or to provide your feedback.
Overview
—
Principle 1 highlights the foundational role of clearly defined strategic impact objectives in anchoring credible impact investment strategies and activities. Establishing impact objectives at the outset creates a strategic north star that can guide and strengthen decision making throughout investment processes and support continuous learning and improvement as well as organizational accountability.
The principle calls on impact investors to define impact goals at the portfolio- or fund-level that are aligned with widely accepted goals such as the Sustainable Development Goals (SDGs). This steers investors away from fragmented impact efforts focused on individual investments and toward intentional contributions to address broader, systemic challenges that require coordinated and impact-aligned capital deployment at scale. Importantly, it also emphasizes that the impact objectives should be consistent with the investment strategy, ensuring that capital is deployed in a way that credibly contributes to intended impact outcomes. Moreover, the size and intensity of the intended portfolio impact should be proportionate to the size of the investment, ensuring that the impact is both meaningful and attainable.
CHALLENGES IN THE IMPLEMENTATION OF PRINCIPLE 1
Principle 1 has gained broad adoption across the impact investing field, with defining strategic impact objectives becoming table stakes for most investors claiming impact. While this practice is widespread, there remain areas for improvement in implementation as investors go beyond surface-level objectives to develop deeper impact strategies, including deepening rigor and evidence of their theories of change and determining appropriate impact scale and intensity for the portfolio.
Aligning with widely accepted goals without deeper strategic focus. While identifying SDGs or other widely accepted goals is a positive step to signal alignment with global priorities for positive impact, it risks stopping at a superficial mapping exercise if not supported by clear outcome objectives and meaningful strategies for driving investors’ decision-making. Investors create more strategic clarity by developing specific impact frameworks and metrics and using SDGs or other global or industry goals as a strategic lens to anchor impact objectives, track outcomes and guide capital deployment.
Lacking rigor and evidence in theory of change. Many investors develop and share their theories of change or impact theses for how their funds or portfolios will contribute to desired outcomes. (See more on Key Observations below.) However, sometimes, these theories of change lack sufficient rigor and fail to articulate existing evidence, risks or underlying assumptions, or rely on assumptions without testing them, which limit their credibility and ability to improve over time
Establishing a credible basis for impact. Substantiating the link between a specific investment strategy and a set of impact objectives is not always straightforward, and the link is often assumed without clear explanation. Investors generally describe asset classes, stages of capital, specific investment terms, structures or design features that they believe are well-suited for delivering the intended outcomes. However, there is limited industry-wide knowledge or consensus documenting and correlating the effectiveness of specific investment strategies with types of impact objectives. This presents a potential knowledge-development agenda for the field, with increasingly diverse investment strategies being applied for impact.
Determining “proportionate scale and intensity” of impact: Without clear benchmarks, norms or structured approaches in the field, it is difficult to determine the appropriate scale and intensity of intended impact relative to the size of the investment portfolio. The trade-offs between scale and intensity or breadth and depth of impact further complicate the issue.
KEY OBSERVATIONS IN THE IMPLEMENTATION OF PRINCIPLE 1
Today, most investors claiming impact include some articulation of strategic objectives at the fund or portfolio level, making Principle 1 a cornerstone of credible impact investing. As the field matures, however, what distinguishes leaders is not simply whether they state impact goals, but how they define, operationalize and adapt those goals across increasingly complex portfolios and market environments. The Signatory disclosure statements also show different types of strategic orientations among investors that demonstrate how investors define their role and contribution to impact in the market, articulated in their theories of change.
Notable observations include:
Broad adoption of SDGs as global impact framework. The SDGs have become the prevailing global reference for articulating impact objectives, with most investors aligning their investments to one or more of the 17 SDGs, and some investors further aligning with one or more of the 169 SDG targets. This provides a shared language for the industry in allocating capital towards global impact priorities. Other frequently cited global frameworks include the 2X Challenge and Paris Accords, which address gender and climate impacts, respectively.
Aligning impact across diverse and multi-asset portfolios. As the field is maturing, more investors are moving beyond single-strategy funds to develop multi-asset, multi-strategy platforms where impact is applied across diverse asset classes, themes and geographies through multiple portfolios or funds. This is a promising trend that signals further mainstreaming of the impact investing field while expanding impact investors’ potential for innovation, flexibility and scale. These investors often develop an overarching firm-level impact framework — such as SDG alignment, impact thematic priorities or taxonomies — that provides strategic coherence across a diverse portfolio while allowing for tailored objectives at the strategy, theme or asset class levels. Impact objectives are adapted to fit the characteristics of private equity, private credit, real assets or public markets, reflecting variations in investment terms, processes and scale of these asset classes as well as differences in how impact is structured, delivered and measured within each strategy. When aligned effectively, this approach supports both strategic consistency and operational flexibility.
Theory of change to enable robust impact framework. The theory of change is increasingly recognized as a vital tool for bringing strategic clarity, accountability and intentionality to impact frameworks as investors move from high-level intentions to structured, evidence-based practices throughout the investment lifecycle. Theories of change help investors
Clearly define the problems being addressed, including key affected stakeholders and root causes or structural barriers to the challenges.
Articulate the contributions the investor will make, along with evidence supporting the strategy interventions.
Map how the investment activities (inputs, activities) will drive short-term, intermediate and long-term changes (outputs, outcomes, impact).
Identify assumptions, contexts and risks that may affect the path to impact.
Strategic orientation archetypes. As more investors articulate their theories of change across diverse markets, sectors and asset classes, a set of archetypes are emerging that reflect distinct approaches to impact ambition and value creation. These archetypes may be grouped into three broad categories:
Solution-driven: Focused on identifying or scaling interventions that directly address a well-defined social or environmental problem.
Financing-driven: Focused on how the type or structure of capital can address market gaps, de-risk investments or enable capital flow at scale.
Systems change-driven: Focused on driving transformations at the sectoral, value chain or capital market level to address root causes and shift systems.
Many investors combine elements of these archetypes, but distinguishing between them can sharpen strategic clarity and enhance impact management [See exhibit 1a].
—
EXHIBIT 1a. Theory of change (ToC) archetypes based on different strategic orientations of investors
Theory of change as the throughline across the principles and lifecycle. For many investors, the theory of change is increasingly being applied across the full investment lifecycle and throughout the principles, serving as a unifying throughline or the “golden thread” that links strategic intent with operational execution and learning. Beyond strategy, a theory of change helps reinforce consistency across investment decision making, articulates investor contribution and risks, guides ex-ante impact assessment and ex-post impact monitoring, and provides a basis for exit review as well as continuous learning and improvement [See Exhibit 1b].
—
EXHIBIT 1b. Theory of change (ToC) across the principles and investment lifecycle
Theory of change at varying levels. Investors are developing and applying theory of change frameworks at various levels of decision making, including at the firm-wide level, fund or strategy level, asset class level, impact theme or sector level, and investment level. Some organizations develop nested theories of change at multiple tiers within the organization, including for each investment, to support flexible and rigorous application across their varying impact activities while ensuring alignment with overarching impact goals. This tiered approach allows for strategic clarity and consistency without over-simplification.
Institutional mandate as a driver of strategic objectives. Institutional investors with public or mission-driven mandates (e.g., development financial institutions, public or multilateral development banks, sovereign wealth funds, philanthropic or nonprofit investors) often define impact objectives directly tied to their institutional long-term missions, such as inclusive growth or climate resilience. These mandates provide long-term stability and clear guardrails for strategy, while also raising the bar for transparency and performance.
LPs aligning impact with managers. Asset owners and allocators (i.e., limited partners or LPs) depend on their asset managers (i.e., general partners or GPs) for their ability to deliver on their impact goals, making LP-GP alignment on impact a strategic and operational necessity. LPs also play an influential role in signaling the market on impact priorities as well as reinforcing impact integrity with alignment on impact standards and norms. Leading LPs are engaging with fund managers to align on impact goals and practices at the fund level. This may involve clarifying impact expectations during manager selection and in requests for proposals, including shared impact objectives and alignment with industry standards and frameworks (e.g., Impact Principles, SDGs, SFDR); agreeing on impact metrics and reporting expectations; engaging with GPs as partners through capacity building or co-creation of theories of change or impact frameworks; and using disclosures, verification or other third-party assurance, evaluation or benchmarking tools to track impact alignment and support continuous learning and improvement.
Common, Emerging & Nascent Practices in the Implementation of Principle 1
—
Note: The findings and observations are primarily based on an analysis of the most recently published 166 Signatory Disclosure Statements at the time of the review in early to mid-2024.
An analysis of Signatory disclosures reveals a universal commitment to defining strategic impact objectives, including a widespread alignment with the SDGs and articulation of high-level investment strategies such as asset classes. However, beyond these broad commitment and strategic alignments, the depth, rigor and consistency in implementation of Principle 1 vary significantly. Just over one half of Signatories disclosed developing and using a theory of change or impact thesis, which indicate a more robust and structured approach to defining and operationalizing the impact objectives. Assessing the proportionality of impact scale and intensity relative to the size of capital is still a nascent practice disclosed by only a small subset of Signatories.
Defining strategic impact objectives. 100% disclosed having strategic impact objectives, typically at the organization, fund or portfolio levels. These objectives range from broad thematic or sector-based goals (e.g., sustainable agriculture, financial inclusion, health, social equity) to targeting specific outcomes (e.g., job creation, reducing emissions, mobilizing impact capital in emerging markets) aligned with global frameworks such as the SDGs.
Investment strategies consistent with impact objectives. 98% disclosed investment strategies — typically information about asset classes, investment stages and geographies — to establish how they are consistent with the impact objectives. 95% disclosed investing in private markets (e.g., private equity, venture capital, private debt, real estate, infrastructure) while 12% disclosed investing in public markets (e.g., green or social impact bonds, listed debt, listed equity), with a small but increasing number of Signatories investing across both public and private markets.
Aligning with SDGs or other global impact frameworks. 84% disclosed aligning with one or more of the 17 SDGs, with some further specifying which of the 169 SDG targets they align with. Most investors identified between 4 and 10 SDGs they aligned with across their portfolio — often across multiple funds, strategies and asset classes — with many investors also identifying a smaller subset of primary SDGs that they specifically target for their impact objectives. Goal 8: Decent work and economic growth and Goal 13: Climate action were the most frequently targeted, while Goal 16: Peace, justice and strong institutions and Goal 14: Life below water were the least targeted. Other global frameworks Signatories frequently align with included the 2X Challenge and the Paris Accords.
Developing a theory of change. 53% disclosed creating a theory of change or impact thesis. While a theory of change was most commonly used to establish strategic impact objectives for the fund or portfolio, theories of change were also created at many other levels (e.g., asset classes, impact themes, individual investments) and used as a tool across the investment lifecycle.
None identified for this principle
Establishing proportionate scale of impact. 17% disclosed explicitly assessing or considering the scale and intensity of intended impact to ensure it was proportionate to the size of the capital. This practice was more frequently observed in multilateral development banks, development finance institutions and blended finance strategies. The proportionality was often framed in terms of ambition in resource allocation, capital leverage or contribution, and considered when developing the theory of change, setting impact metrics and goals, or during assessment of investment opportunities.
Principle 1 Signatory Practice Spotlights
—
