Glossary | Impact Investing Institute

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Asset manager: An investment team or firm tasked with selecting and managing assets in a portfolio or fund on behalf of investors.

Blended finance: Financing that uses patient risk-tolerant ‘catalytic capital’, for example from development or philanthropic sources, in order to attract and mobilise additional private capital flows to impact investment opportunities.

COP: Refers to ‘Conference of the Parties’ – the annual conference for countries that signed the United Nations Framework Convention on Climate Change (UNFCCC) – a treaty that came into force in 1994. COP 28 will be held in November/December 2023 in Dubai.

Capital markets: The multi-trillion markets on which companies, governments and other organisations raise large-scale funding by selling financial instruments such as shares and bonds to investors. A goal of the Impact Investing Institute is to make capital markets work better for everyone by all capital markets investments being impact-focused.

Carbon neutrality: Achieving net zero carbon dioxide emissions through a combination of cutting emissions and absorbing or capturing them.

Catalytic capital: Investment capital that accepts higher risk or reduced returns to enable (‘catalyse’) other third-party investment in a new and unproven opportunity that would otherwise not be possible. Catalytic capital might mitigate risk for other investors by providing a guarantee, taking a higher-risk tranche or a ‘first-loss’ investment.

Co-creation partnership: An alliance whereby institutional investors and impact investors, including MDBs and DFIs, and others such as foundations, jointly establish an investment vehicle to catalyse capital towards an social or environmental impact objective.

Co-management partnership: Investment managers with complementary skill sets and expertise, e.g., a mainstream asset manager and an impact manager, cooperate to leverage their respective capabilities to create a combined investment offering that is attractive to institutional investors.

Development finance institution (DFI): A government-backed institution that invests in private sector projects in low and middle income countries to promote job creation and sustainable economic growth

Emerging market: A developing nation that is in the process of becoming an industrialised economy, and can therefore see more rapid rates of economic growth than developed markets.

Environmental, social & governance (ESG): A term that has increasingly come to refer to the key non-financial factors that investors look to assess to determine the sustainability risks and opportunities a company, bond issuer or other investment presents.

Fiduciary duty: The obligation on institutional investors such as pension fund trustees to act in the best interest of scheme members. The Impact Investing Institute has worked to show that fiduciary duty and impact investing are compatible.

Fixed income: Securities that pay a fixed regular income and return capital to investors at the end of a fixed term. Including government bonds like UK gilts, fixed income plays a key role in funding impact activities.

G7 Impact Taskforce: A taskforce convened as part of the UK’s 2021 presidency of the G7 group of developed nations, and co-led by the Impact Investing Institute and the Global Steering Group for Impact, to promote and enable impact investing among the world’s leading investors.

Global Impact Investing Network (GIIN): The global champion of impact investing, dedicated to increasing its scale and effectiveness around the world. A non-profit organisation, GIIN convenes impact investors – and the national organisations that represent them – to facilitate knowledge exchange, highlight innovative investment approaches, build the evidence base for the industry, and produce valuable tools and resources.

Global Steering Group for Impact (GSG): A UK-based charity bringing together 35 countries and leaders from finance, business and philanthropy to solve some of the world’s most pressing social and environmental challenges. The GSG is the successor to the Social Impact Investment Taskforce established under the UK´s 2013 presidency of the G8.

Green+ Gilt: A UK sovereign bond raising capital specifically to fund projects and infrastructure delivering positive social or environmental impact.

Impact Investing Institute: An independent, non-profit UK-based organisation launched in 2019 – bringing together the Government’s Taskforce for Growing a Culture of Social Impact Investing in the UK and the UK National Advisory Board on Impact Investing – to accelerate the growth and improve the effectiveness of the impact investing market in the UK and internationally.

Impact Investing Principles for Pensions: A four-point framework developed by the Impact Investing Institute in collaboration with the pensions industry to enable pension schemes to pursue an impact investing strategy that is compatible with their fiduciary duty.

Impact Management Project: A forum for building global consensus on how to measure, assess and report social and environmental impacts generated by investment. The resultant IMP measurement framework looks to assess five dimensions of impact in an investment vehicle or project: What, Who, How Much, Contribution and Risk.

Impact investing: The practice of deploying capital so it can achieve specific positive environmental or social impacts as well as a financial return for investors.

Institutional investor: An organisation that invests capital on behalf of its members, policyholders or beneficiaries, with an in-house or third-party asset manager overseeing the day-to-day running of the investment portfolio. Institutional investors include pension funds, insurers, charities and foundations, and sovereign wealth funds, and comprise the largest investors in the world.

Intentionality: An impact investor’s deliberate goal to contribute to specific positive and measurable social or environmental outcomes.

Intergovernmental Panel on Climate Change (IPCC): The body of the United Nations responsible for advancing scientific knowledge about man-made climate change.

International Sustainability Standards Board (ISSB): A board formed by the IFRS Foundation to develop comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets. The IFRS Foundation was also responsible for the IFRS Accounting Standards, the globally-recognised financial statement standards used by companies and other organisations in more than 140 jurisdictions.

Just Transition Finance Challenge: A flagship initiative by the Impact Investing Institute launched in 2022 to mobilise more public and private capital into investments that support a global just transition to net zero, bringing together leading global financial institutions with over £4 trillion of assets and assets under management.

Just transition: Moving to a net zero carbon global economy in a way that is fair and inclusive to everyone – at every social level and in every geographic region. A just transition should maximise the opportunities created from moving to more sustainable practices by creating decent work opportunities and leaving no-one behind.

Just transition blueprint: A set of principles co-developed by the Impact Investing Institute and other impact stakeholders to inform the design of any impact investment vehicle to ensure the vehicle meets the three Just Transition Elements, regardless of which asset classes or markets it is investing in.

Just transition elements: The three critical drivers identified by the G7 Impact Taskforce as essential to investment vehicles and actions seeking to advance a just transition to a net zero carbon economy. Namely, a just transition vehicle needs toadvance Climate and Environmental Action; improve Socio-economic Distribution and Equity; and increase Community Voice.

Just transition financing vehicles: Investment funds and other vehicles built expressly to help finance a transition to a net zero carbon world that is inclusive and beneficial to society – including by incorporating the Just Transition Elements – see above.

Multilateral development bank (MDB): An international financial institution established by two or more countries to encourage economic development. MDBs play a key role in providing capital for impact investment in emerging markets.

National Advisory Boards (NABs): The domestically-focused not-for-profit organisations working to catalyse impact investment in their markets and which convene under the umbrella of the Global Steering Group for Impact and the Global Impact Investing Network.

Net zero (see also ‘carbon neutrality’): A state where man-made greenhouse gas emissions are effectively reduced to nothing by cutting emissions wherever possible then using practices such as forest-planting to absorb remaining emissions in the atmosphere that can’t be cut out completely.

Patient capital: Investment where the investor is willing to commit for the very long term before realising a financial return in order to support early-stage enterprise and innovation or higher-risk investment – typically in order to solve a social or environmental challenge.

Pensions for Purpose: A profit-for-purpose UK-based organisation that seeks to act as a bridge between asset managers, pension funds and their professional advisers to encourage the flow of capital towards impact investment.

Philanthropy: The practice of providing capital for social or environmental good without any expectation of financial return – making it fundamentally different from impact investing.

Place-based impact investing (PBII): The practice of developing real estate assets in specific locations to achieve specific social or environmental objectives, while also targeting a financial return for investors.

Private investments: Asset classes such as private equity, private debt and infrastructure that aren’t traded on public stock markets and can therefore give investors a lot of control to achieve their social and environmental objectives.

Real assets: Refers to investable assets that are tangible – principally property and infrastructure – rather than tradable securities such as equities and bonds.

SDGs: see UN Sustainable Development Goals

Securitisation: The practice of structuring a financial institution’s loan portfolio into securities that can be sold to investors in order to free up capital on the institution’s balance sheet for further lending and investment. Securitisation is increasingly being used by multilateral development banks and development finance institutions to expand their financing capabilities in the impact investing space.

Socially responsible investment (SRI): Focusing on systematically screening out harmful products and practices (such as companies involved in tobacco, firearms or gambling) from an investment portfolio.

Sovereign Wealth Fund (SWF): A state-owned investment fund typically comprising money generated from a country’s surplus reserves and invested in a range of assets in order to generate financial returns to help meet the country’s future funding needs.

Spectrum of capital: Describes the gradations of financial return vs impact that capital may look to achieve. Ranges from traditional investing, which solely looks to deliver financial return, to impact investing, which looks to achieve both financial return and impact – and, finally, philanthropy, which looks to achieve impact with no expectation of financial return.

Subordinated capital: A type of blended capital widely used for impact investment where junior tranches absorb any losses first so senior tranches are protected from loss – thereby enabling more risk-averse investors to participate.

Sustainable investing: Selecting companies that have the potential to outperform the market because they are managing environmental, social and governance (ESG) risks and opportunities in a more sustainable way than their peers and are therefore more likely to flourish in a changing landscape.

Syndication: In impact terms, a blended finance transaction where a lead investor such as a multilateral development bank syndicates part of a loan to institutional investors, thereby enabling the latter to participate in development opportunities – for example in emerging markets.

The Global South: Refers to countries in the regions of Latin America, Africa, Asia and Oceania. The Global South is often seen to be the global region most exposed to the negative physical impacts of climate change such as flooding, drought and extreme weather patterns. It is also home to many socio-economically marginalised peoples whose needs have to be carefully taken into account when determining how to ensure a ‘just transition’ to a net zero carbon global economy.

The Paris Agreement: A legally binding international treaty on climate change adopted by 196 parties at the UN Climate Change Conference (COP21) in Paris, 2015, agreeing to aim to hold the increase in the global average temperature to well below 2°C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.

Traditional investing: Investment that focuses on delivering financial return, without any responsible, sustainable or impact investing considerations.

UK National Advisory Board on Impact Investing: The forerunner to the Impact Investing Institute – see above.

UN Principles for Responsible Investment (PRI): An international organisation working to promote the incorporation of environmental, social and governance considerations into analysis and investment decision-making by major investors, asset managers and other financial institutions. Signatories must commit to six core principles. Launched in 2006, the PRI had over 4.900 signatories by March 2022, representing over £120 trillion in assets.

UN Sustainable Development Goals (SDGs; aka ‘The Global Goals’): A collection of seventeen interlinked objectives adopted by the United Nations designed to serve as a shared blueprint for peace and prosperity for people and the planet. Many impact investments will take the SDGs into account in their design.