Systemic Impact Investing: Concepts and cases for real, better, and bigger impact through investment

Executive summary

Systemic impact investing explores the concept of leveraging investments to achieve significant and sustainable development outcomes. It highlights the limitations of traditional impact investment paradigms and introduces the concept of systemic impact investing as a more effective approach.

The context of the paper is set against the backdrop of constrained budgets and increasing development challenges, which have necessitated a shift from traditional development assistance to more innovative approaches like impact investment. Impact investment aims to generate both financial returns and development impact, but current practices often fall short of achieving genuine and maximised impact.

The paper argues that systemic impact investing, which applies systems thinking to development challenges, offers a more credible, larger-scale, and sustainable approach to impact investment. This approach involves understanding development problems as products of the institutional environment and addressing constraints through temporary support delivered by various actors.

The paper identifies several key issues with the current impact investment paradigm, including the omission of externalities in the real economy and financial markets, the lack of consideration for temporal sustainability, and the misrepresentation of impact and financial additional. It proposes a shift towards systemic impact investing, which focuses on generating development impact, ensuring sustainability, and achieving scale.

To achieve systemic impact, the paper suggests fundamental changes in investment practices throughout the investment lifecycle. These changes include better sourcing of investments, improved management of investments, and more comprehensive measurement of impact. The Lean Systems Approach, developed by Agora Global, is presented as a practical framework for achieving systemic impact investing.

The paper concludes with case studies demonstrating the application of systemic impact investing in various contexts, including a groundnut processing company in South Africa, a large asset manager, and a bilateral donor mobilising private capital in Armenia. These case studies illustrate the potential for systemic impact investing to deliver more significant and sustainable development outcomes.

The paper highlights the new Systemic Impact Investing Standard as a tool for asset owners to identify asset managers who are aligned with and capable of delivering on an ambition of systemic impact.

Overall, the paper makes a compelling case for systemic impact investing as a transformative approach to achieving real, better, and bigger impact through investment.

Context

Development impact reflects an ambition – or rather a range of ambitions – and there are many ways to get there. While the destinations might include poverty alleviation, environmental protection and improvement, or equality, the tools and processes through which we might arrive there are even more varied. National governments, for the most part, have development at the heart of their mandate. However, there are a number of other stakeholders – both domestic and international – who see development as at least part of their mandate. For the last 70 years, ‘international development’ through Official Development Assistance (ODA) and philanthropic spending has been the most obvious example of the ways in which money is spent in pursuit of these outcomes. In recent years, this paradigm has been challenged with constrained budgets and a growing number of seemingly intractable issues on which to spend them.

In the last 20 years, there has been a greater recognition of the need to more explicitly pursue mutual benefit and a diversity of objectives, including but not limited to development, owing to the scale of the challenge to be addressed. Impact Investment is one important example.

Impact investment seeks return for investors in parallel to development impact. While often conflated and with blurred lines, it should be seen as different from responsible investment and ESG compliant investment which focus on ‘do no harm’ and risk mitigation. Indeed, impact activities under these investments are often guided by self-interest and reputational protection on behalf of the investor. Rather, impact investment is defined by a view that the social or environmental impact is part of the reason the investment is being made – it reflects a decision made by the asset owner or investor that this is how they wish to spend their money as opposed to allocating it towards purposes that are impact agnostic. This is consistent with the first of GIIN’s core characteristics of impact investment; intentionality.

That being established, then, it is critical to determine whether that the impacts being achieved are genuine and maximised to deliver an impact as well as a financial return on investment. Despite good intentions, current paradigms in impact investment have failed to establish either of these criteria with major flaws in conceptions of impact and structural limitations in practices which limit the potential to achieve it.

It is in this context that the concept of systemic impact investing was developed, leveraging over 20 years of development practice applying systems thinking to development problems.

Systems thinking in development

Development paradigms of direct giving resulting in unsustainable and small-scale impact led, in the early 2000s, to the application of systems thinking to development problems. Codified initially as Making Markets work for the Poor and later Market Systems Development, this involved seeking to understand development problems as a product of the institutional environment within which they existed; not as a problem of actors but as a product of the functions they performed, the constraints they collectively faced and, crucially, how the incentives of different actor groups led to these constraints. From the perspective of a development intervention, using temporary support delivered through public, private, and civil society actors within that context and leveraging their incentives for long term behaviour change, the stated objective was to address problems that applied not to one but to many, and to do so in a way that did not require the ongoing support of an external, ‘development-minded’ funder.

Over the following two decades, many billions of ODA have been spent under this banner across the majority of sectors, countries, and development funders.

The ‘development’ paradigm in impact investing

Impact investing, by contrast, is necessarily an actor-focused approach; investments are made in entities – firms, funds, projects etc – which are seen as the deliverers of impact.

While not universally the case, other common characteristics of impact investing practice regarding impact generation include:

• A post-rationalised impact thesis based on having identified a high-potential financial return.

• Impact-focused activities as a conditionality of investment with portfolio companies conducting various ESG-related activities to comply with investment criteria.

• Impact being purely a reporting concern from the investor perspective.

• Weak impact theses without adequate definition of the geographies of or targets for impact.

• No consideration of additionality

• No consideration of impact post-exit and the drivers to ensure it is sustainable

• No consideration of the prevalence of the development challenge beyond the firm level.

• Ineffective use of impact technical assistance focused on firm-level compliance and measurement.

Problems with the current paradigm

Drawing from experience of systems thinking in development, the root causes of the constraints to impact are clear, with tools to analyse and seek to address them in any context. Reflecting on the development paradigm in impact investment, the inherent problems also become clear.

Figure 1: Mechanisms for impact under the current paradigm in impact investment

Under the current paradigm, investments are made into a firm in the real economy of a financial institution. Firms in the real economy are then seen to generate impact through the wages of people they employ, the purchases they make from their supply chain (who also employ and buy from others) and through the beneficial goods and services that the firms into which investments are made produce – from health product, solar energy, food and any number of other things. In the financial sector, the theory of change is just one further step removed; investment goes into financial institutions, these financial institutions then offer financial products and services to consumers and firms in the real economy, which then go one to generate these developmental impacts.

Omission of externalities in the real economy

The most important way in which the current paradigm misrepresents its impact is by not considering where a portfolio company sits within the ‘system’ in which it operates. Simplistically put, if an investment of concessional capital in one company causes its growth while another who does not have access to concessional capital contracts, then the net impact of the investment is zero and may in fact be negative.

While it is suggested in some of the more recent standards, norms, and guidelines, consideration of other actors in the value chains into which investment is directed is very rare. Paradoxically, in many cases this should be where the real opportunities for impact at scale exist and be a key justification for investment. If the reason that textile factories – as a key potential employer of low-income people - cannot grow rests in the absence of appropriate packaging materials then the potential impact of investing in a packaging producer, who may not employ many people directly, has far greater impact potential than investment in a textile factory, for example.

Most importantly, for risk-bearing investment to generate impact it must address a development challenge and not solely an actor-level or company challenge. If this investment is successful, it will result in innovation. This innovation will not only be beneficial to the portfolio company but to the systems in which that company operates – to it buyers, suppliers, and service providers, but also to the competitors in the sector which build on that innovation and to their buyers, suppliers and service providers. Successful innovations scale and catalytic investments have knock on effects throughout the systems into which they are made.

The consequence of not considering the broader system within which an investment exists and through which it creates impact is not that the current level of impact is necessarily higher or lower – just that what is being reported it not accurate. Even without the changes in investment approach that would result from systemic impact investing, assessing impact pathways of current investment through a systems lens would likely change – positively and negatively – the extent and nature of impacts being reported.

Omission of externalities in financial markets

Impact investments exist as part of a financial market. While they should necessarily be investing for reasons beyond pure financial return, portfolio companies have a range of options through which capital might be obtained. The actions of an impact investor have consequences on both the supply and demand side of these financial markets - for both other providers of capital and for other companies seeking capital. If an impact investor enters a market and offers capital on concessional terms to a bankable entity, this may undermine the commercial viability of the sector for purely commercial finance and distort the market. The constraint that this puts on domestic capital market development may mean that other enterprises in similar sectors have no access to capital as the market cannot reach scale. Alternatively, an investment in a new sector, country, or business model may build confidence in that market such that others crowd-in and follow suit. This could lead to the impact of an investment through its impact on financial markets being far greater than that in a real economy firm into which an investment was made.

While the examples are hypothetical, the logic is clear; without consideration of where an investment sits within financial markets and the consequences of an investment upon them, an accurate assessment of the impact of an investment is impossible.

Omission of temporal considerations and sustainability

If investments are made because of their potential to address the constraints that lead to development challenges, then it stands to reason that impact will continue to be generated, even after loans are repaid or equity positions are exited. While not universal, common practice remains for ‘impact’ to be a conditionality and not a consequence of investment. Measurement and reporting are limited to the activities of the portfolio company for the duration of the investment. If investments do address systemic constraints and support innovation, then this practice systematically under-reports impact which will continue long after the period of investment. And if investments do not address systemic constraints, then the performative nature of impact through investment is not visible.

Again, sustainability discourse features in some of the more recent guidelines, principles, and standards for impact investment but this has not yet translated into practice or led to adjustments in how investments are directed.

Misrepresentation of impact and financial additionality

Portfolio companies exist and are, for the most part, generating impact prior to the investment of capital. They are also most often on growth trajectories. If it is the growth of the company that is intended to generate impact, even the most basic assessment of additionality should examine a counterfactual and therefore an assessment of the additional impact that has happened as a result of the investment.

Another aspect of that counterfactual requires an understanding of the financial position of in order to assess the impact of the investment. Making a small investment in a firm that goes on to offer beneficial services to large numbers of consumers does not mean that all of the impact the company creates is attributable to the investment made. In some cases, multiple impact investors invest in the same portfolio company and yet all report the same jobs created or customers served.

To understand the additionality of an investment it is also necessary to understand the nature of the investment which includes the quantity of capital, but also the terms of which it is invested, and any non-financial value add from the investor as part of the investment. For example, if two funds invest the same amount in the same portfolio company but one specifically focuses on the strategy of the company to reach lower income consumers and provides technical assistance to support them to do so while the other provides no additional support, their impact cases are clearly very different. Similarly, from a financial perspective, an investment from a fund taking a subordinated position which facilitates further investment should not be considered in the same way from an impact perspective as an investor that comes along later on purely commercial terms.

Systemic Impact Investing

Recognising the potential for the large pools of impact capital to contribute to development, the limitations of current practice, and the learning from 20 years of application of systems thinking to development challenges, an approach has been developed and applied that leads to more credible, larger scale, and more sustainable impact through investment.

Systemic impact is different. Systemic impact is when investments use a firm-centric investment to generate impact within and beyond the firm by addressing constraints to impact; selecting innovative investments that address these challenges, deliberately managing them to maximise impact, and measuring the net financial and impact additionality of the investment.

---

To whom is systemic impact relevant?

Financial flows are complex, and impact investment is no different. There are many different pathways through which impact capital is deployed. A range of ‘asset owners’ channel their funds through a range of intermediaries before the capital is ultimately deployed – either through firms in the real economy, public projects, or through financial service providers who then provide services to consumers and businesses in the real economy. It is the ultimate deployment of capital which is where the impact should be realised. Systemic impact investing is relevant to asset owners as it is they who have been given capital with an impact mandate. It is relevant to asset managers as it is they who decide where to put that capital in order to deliver the impact that was the basis for the capital they received. Under these pluralistic investment pathways, different types of organisations can be and owner, a manager, or both under different scenarios.

---

Systemic impact is characterised by three things:

• Additional development impact: Impact investment must generate development impact. The SDGs do not include the number of products sold, company growth or turnover. Performance of investments should be assessed according to the full length and breadth of a theory of change for how the investment has contributed to improving people’s lives.

• Sustainability: Impact cannot be performative. Impact has to happen because of the investment and not as a condition imposed on companies to receive investment. This means that through the investment which facilitates the company’s growth, impact will continue to happen, including after debt repayment or exit.

• Scale: For investment to maximise its potential, it cannot simply address the needs of the company; it must address the barriers to impact in aggregate. Using concessional capital to grow one company at the expense of another fails to catalyse change, or indeed result in any net impact at all. Investment, seen as a package of financial and non-financial value add, should address barriers to impact resulting in more and more people being impacted over time.

To achieve systemic impact through investment requires some fundamental shifts in practice throughout the investment lifecycle. While a significant departure from the current paradigm, these changes are affordable, achievable, and realistic in their ability to realise the development promise of impact investment.

Figure 2: Pathways to systemic impact

To promote sustainability and scale and to be realistic within the current political economy of impact investment, it is critical that Systemic Impact is pursued as a core part of delivering on an investment mandate and must be aligned with the incentives of asset owners, asset managers, and portfolio companies.

For asset owners, systemic impact has to be seen as a way to deliver on their existing mandate. By highlighting the problematic nature of current practices and how they compromise that mandate, systemic impact is presented as a solution which does not majorly add to their administrative burden – indeed it helps to solve a current and growing problem of how they deliver genuine impact.

For asset managers, it must be affordable and present them with a reason to invest in the practice changes. One reason is that, in a competitive fundraising environment, those who can more effectively deliver on their impact mandate stand to benefit.

For portfolio companies, they should see the benefit of any practice changes aligned to their incentives – usually their profitability. If asset owners have directed their investments towards asset managers capable of delivering systemic impact and, as part of that, asset managers have selected and supported portfolio companies in ways which are aligned with delivering it, then impact should no longer be performative. In some cases, impactful companies growing and addressing systemic constraints by doing so represents that win-win situation. In other cases, changes in practice and business model required to deliver systemic impact should only be pursued because they are aligned with core business interests.

The Lean Systems Approach: An approach to deliver systemic impact

If systemic impact is the objective, the lean systems approach is a series of practices and tools to help asset managers to achieve it. Agora developed the approach in 2018 and has been implementing it in a range of different contexts, with a range of different funding models and driven by different actors within the investment ecosystem including asset owners through technical assistance programmes, asset managers themselves, blended finance actors targeting ecosystem development, and even portfolio companies themselves.

The approach is ‘lean’ to fit the context in which it is applied. When systems thinking was being applied to development challenges using ODA, programmes of five years or longer with budgets of several million dollars sought impact as the only return. In investment, without preservation of capital and more commonly high single or double-digit returns, the capital would simply be unavailable. As such, the approach attempts to change the core practices of asset managers to deliver systemic impact rather than to the attempt to see impact as a separate, parallel and funded set of activities.

The pre-requisite: Systemic Analysis

In order to adapt practice at any point of the investment cycle, it is necessary to understand where a pipeline company, or even a sector or business model in relation to a fund design, sits in respect of the development challenges it might address and what some potential impact pathways might be. Here, the lean systems approach utilises key tools from market systems development.

Figure 3: Thinking in transactions and systems

Systemic analysis requires that you understand how a pipeline company, business model, or even sector relates to a particular development challenge.

To do this, we conceive of a series of transactions which lead to impact and where access to capital sits, as one issue amongst many, which is preventing the realisation of that impact.

Figure 4: Example market system analysis for an investment in financial services

Subsequently the analysis seeks to understand the root causes of underperformance in relation to those transactions.

This analysis helps to understand the relationship between our current or potential investment – financial and non-financial – and the constraints to development impact that it might address. The outcome should be a series of recommendations to support sourcing, management, and measurement, which will vary according to the application of the approach but could include sectors in which to invest, how to structure investments to align with incentives for sustainability and scale, or how to appropriately measure impacts to capture the systemic potential of any investment.

Changes in Practice: Better Sourcing

Adopting a systemic view of impact results in better sourcing of investments which are more likely to generate genuine, additional, sustainable impact. Understanding how pipeline companies fit into the markets in which they operate and how and investment might address some of its constraints allows asset managers to make better investment decisions.

• Investment and impact strategy is informed by ‘market analysis’, not solely financial analysis and ESG screening. The market analysis identifies the key capital and non-capital constraints affecting the investees’ ability to achieve the targeted developmental impact, required changes in service delivery or market behaviour for lasting change and then subsequently, the most effective way to deploy capital and non-capital support. It helps to contextualise the impact pathways in a more holistic manner to assess the likelihood, relevance, and viability. 

• Assessing impact pathways during pre-DD and DD is more comprehensive and focused on maximising value creation as opposed to risk mitigation and compliance. Instead of relying solely on the impact pitch of the portfolio company, the DD goes into identifying systemic risks and opportunities in the supply chain, service delivery related to key supporting functions, social norms and formal regulations that affect the investments’ likelihood to deliver impact. The Investment Committee memo does not only provide high-level impact KPIs and the remote link to SDGs but clearly articulates the key factors that determine impact performance and the asset managers’ strategy to optimise those.     

• Financial and impact additionality considerations prioritised during sourcing. Sufficient information is collected on other sources of capital and the need and relevance of that specific investment to assess financial additionality. And potential value addition of the fund manager is assessed in the context of impact KPIs at baseline and historical growth to be able to meaningfully assess impact additionality.

Changes in Practice: Better Management 

The best asset managers add value to their investments while the worst are simply administrative functions for cheap money. A systemic view of impact should help asset managers to know what kind of inputs are required from them to ensure maximal financial and impact returns on the investment. In some cases, there is an important role here for blended finance. Technical assistance facilities are often used in a linear, simplistic, firm-centric manner – writing documents, ensuring compliance, and conducting market research. Adapting these facilities to be consistent with a systemic view of impact can enable relatively small investments to catalyse impact. These may be investments that are perhaps beyond the risk appetite of an asset manager or portfolio company, but support more widespread adoption of innovation, for example. However, the way in which a Lean Systems Approach facilitates improved management of investments is not limited to technical assistance facilities. It is geared towards ensuring that any way in which an asset manager supports their portfolio company in addition to the provision of capital is aligned with maximising the impact return. Examples of practical differences include:

• Investee support and TA focus on maximising value creation in the market, not improving internal systems (e.g. financial management, governance, inclusivity in leadership, internal policies) of the portfolio company. While those can contribute to improving the capacity of the portfolio company to deliver impact, that link is rarely validated.

• Explicit recognition that impact creation is not the responsibility of the portfolio company only and there are clear roles for the fund manager to actively engage in value creation efforts. The investment agreement should not burden the portfolio company with performative exercises, but meaningful activities in line with the impact pathways, implemented jointly.

• The fund manager and the portfolio company engage with beyond-the-firm market actors relevant to the specific impact pathways. This can include suppliers, service providers, regulators, membership organisations, depending on their specific role in achieving the intended systemic impact.

Changes in Practice: Better Measurement 

Despite good intentions, the examples above highlight how the impact investing community has got better and better at answering the wrong questions; more precisely wrong than approximately right. Adopting a systemic view of impact enables measurement focused on additionality, sustainability, and scale. Methods vary and must be right-sized – with bigger impact claims comes a bigger burden of proof. The key, though, is to look beyond the firm and ask the right questions as to how an investment has generated impact. Practical examples include:

• Impact measurement involves capturing changes at the level of the portfolio company and the broader system. This is to assess the validity and relevance of the firm-level impact and capture wider positive and/or negative changes triggered by the investment.

• A well-articulated Theory of Change that establishes clear link between outputs (i.e. access), outcome (i.e. usage and behaviour change) and impact (i.e., benefit) and shows how the specific activities undertaken by the portfolio company and the fund manager contributed to those changes with measures to assess ‘additionality’ and ‘attribution’. 

• Shift from relying on self-reported data from the portfolio company and introduce measures of triangulation through secondary resources and engagement with wider market actors.

Operationalisation

Lean systems has relevance across the investment lifecycle. Optimally, it is an integral part of how asset managers establish funds. However, in seeking continuous improvement and movement towards real, better, and bigger impact, Lean Systems has also been employed pragmatically at various stages of fund development and at the ecosystem level. 

The systemic impact Investing Standard (SIIS)

Systemic impact investing requires a step change in how impact investment is done. Such magnitude of change does not happen easily. Scaling uptake will depend on the incentives of those involved to do so.

For some asset owners and those working in blended finance, particularly those that had previously worked in the development space with resources redeployed towards private capital mobilisation, their incentives lie in a mandate to deliver development impact. As demonstrated above, the ability to deliver and demonstrate development impacts through investment under the current paradigm is significantly compromised. There is a growing cohort of asset owners and those working in blended finance with development background and an overlapping group who are proponents of systems thinking. For them, systemic impact investing and Lean Systems as an approach to operationalise it provides a solution to their challenges.

For asset managers, the scrutiny of impact is increasing at a time when the fundraising environment is ever more competitive. While moving towards systemic impact investing may seem daunting, the result should be a competitive advantage in the fundraising environment as asset owners seek to direct their capital in this way.

For portfolio companies, a shift in emphasis from performative impact, compliance, and reporting to business changes which are aligned with their business interest has been universally welcomed.

While incentives of all parties align, there are some capability issues which have hampered uptake. For asset owners, differentiating between asset managers according to their likelihood of delivering systemic impact is very difficult according with resource and skills constraints. This is exacerbated by the current environment around principles, norms and standards where every manager seemingly has everything and they are not a suitable differentiator of intent or quality. For asset managers, the majority are unfamiliar with the technical aspects of the approach, and they need assurance of a potential upside in order to invest in capacity building.

As a solution to these challenges, the Systemic Impact Investing Standard (SIIS) was developed to establish best practice for asset managers seeking to pursue systemic impact through investment. SIIS is awarded to asset managers but for the benefit of asset owners who are seeking to differentiate between asset managers and direct their capital to areas with the greatest potential for additional, scalable and sustainable impact. As such, SIIS is the first auditable standard in impact investing - it assesses the entire approach to creating impact, from origination to process to result.

SIIS has been jointly developed by Agora Global and the Bertha Centre at the University of Cape Town with the support of Foreign, Commonwealth & Development Office (FCDO)’s flagship programme IMPACT working on strengthening the impact investing ecosystem to catalyse more impactful investments.

Case studies targeting systemic impact

Case study: Seeking systemic impact at the portfolio company level

An alternative investment fund headquartered in Switzerland invested in a groundnut processing company in South Africa. To maximise the profitability of the processing facility, they needed to increase sourcing of quality nuts at an affordable price. As part of the lean systems approach, Agora sought to understand the firm and industry level reasons why more, better, and cheaper groundnuts were not available and develop solutions which would both justify any investments made by the fund in terms of profitability but also increase the impact across the industry.

A Lean Systems analysis was conducted through research with key stakeholders of the groundnut value chain in South Africa (smallholder farmers, factory owners, factory managers, government extension officers, market representatives, commercial traders, etc.) which uncovered some fundamental issues. Subsequently, a set of activities were proposed to address the issue of undersupply and achieve sector level impact.

Firstly, commercial production was not sufficient to meet demand and competition was intense. Examining the root causes led to the identification of issues from the macro level including trade agreements and logistics, the meso level around industry coordination, to the micro (firm) level including trust, reputation and branding. Addressing some of these issues would enable utilisation to grow and jobs to be created within this factory and within other processing facilities.

Secondly, given the prevalence of small farms in producing regions, the very low level of smallholder production was undermining aggregate supply. Farmers were choosing not to grow groundnuts for a range of reasons – historical risks, absence of capital, poor quality inputs, and the policy choices of government. If these challenges could be addressed, the potential existed for huge increases in incomes for poor farmers across the industry – at the same time as increasing throughput and profit for processors, but the challenges seemed insurmountable for any individual processor to tackle.

Using the Lean Systems Approach, a range of potential low-cost investments were identified, costed, and prioritised including prefinancing of inputs for small farmers, convening special interest groups through the groundnut forum, and engaging in advocacy with government and agriculture organisations to increase support to small farmers. These all potentially yield both a developmental and economic return for the asset manager and a financial return for the portfolio company. In the first phase, pilots have begun on guaranteed purchase arrangements and inputs supply and dialogue is ongoing at an industry level.

Case study: Blended finance at the asset manager level

A large asset manager with over $1Bn AUM was being pressurised by large institutional investors to deliver and better validate its impact claims. As a well-established manager delivering high levels of returns to investors, changing anything was challenging. However, applying a systemic analysis in many ways allowed for critical reflection on success factors and areas that could be strengthened. In this case, the success of the fund was to a degree driven by the degree to which systemic thinking was already baked into their operations. In other cases, using this lens allowed the asset manager to be more systematic about how they would ensure this genuine impact was captured and mainstreamed through their processes for all future investments.

In this case, the asset manager themselves relied on a single consistent theory of change – improving access to technology-linked financial products and services - and were expert in the subsector in which they invested. They were also and, as a consequence, activist investors. The nature of the portfolio companies meant that consumer growth was validation of the theory of change – as the market dictates these outcomes. Lean systems analysis provided additional lenses on financial additionality, which required additional research at the due diligence stage as to the likely impact of investment on financial markets. It also added a more in-depth assessment of the innovation landscape prior to investment. What was previously a paper exercise based on growth and market share, was expanded to include qualitative considerations of impact additionality from a consumer perspective – a product in financial education with a more user-friendly interface leading to growth over a competitor is not the driver of access to education through finance. Rather the expansion to new groups through more innovative marketing, cost reduction and overall expansion of that market this drives it what matters in delivering on the impact theory of change.

Throughout screening and management stages, it helped to codify the impact focus in qualifying and guiding investment towards impact. While the theory was that investments would start with financial access for low-income consumers, a purely financially driven management intervention may allow drift to focusing on markets with higher margins whether the theory of change becomes invalid.

Perhaps most importantly in this case, the lean systems approach forced a reappraisal of how this asset manager, with many key features being aligned to delivering systemic impact, measured and reported on their impact and how this fed back into decision making and fund raising. While the work is not yet complete, it is likely that the impact numbers will change significantly and positively but that the impact pathways will change. The innovations in which this very successful fund has invested have in themselves been very successful with many delivering five times market rate returns. Evidence is already emerging around the market level effects of these investments with organic and fund-led scale up internationally.

Case study: Blended finance at the asset owner level 

A bilateral donor sought to use ODA to mobilise private capital towards the Armenian private sector in order to address the development challenges of unemployment for women and young people. A systemic analysis identified a range of issues affecting both the quality and quantity of demand for and supply of capital into the Armenian investment ecosystem where blended finance could play a role in addressing the root causes of these constraints.

A small and focused private risk capital market was limited to investments in high-tech sectors while the majority of jobs for women and young people were in non-tech sectors. Capital was not available to these sectors due to the small and risk averse nature of the private financial sector as a whole, which limited innovation. A technical assistance programme with several different workstreams was mobilised. On the supply-side, support was provided to institutional investors and financial institutions to support diversification in capital instruments and encourage innovation. This included supporting new product offerings from pension funds, mobilising revolving debt funds, deploying lending platform for micro to small loans and launching an investment matchmaking platform for diaspora investors. Meanwhile, the real economy businesses that were constrained in their access to capital through a lack of appropriate instruments are able to grow and create jobs.

On the demand side, as a product of the emergent capital market, the level and quality of demand for capital was identified by the analysis as being mismatched with the supply. The root cause of this was the underdeveloped advisory services function which was failing to provide pipeline of investment ready businesses to investors. Businesses, particularly outside of the successful tech sector, lacked familiarity with new asset classes, were nervous about equity release, and lacked the skills to market and present their businesses for investment. In other markets, these roles are effectively filled with transaction advisory services but in Armenia, this market was underdeveloped. As such, a technical assistance intervention was developed to support the transaction advisory services market. This aligned with the incentives of the advisors seeking new clients, the investors seeking investable pipeline and the businesses seeking investment.

Other support is under discussion including partial credit guarantees for innovative lending products, other investment intermediation services (such as crowdfunding), improving investment banking services and capital market development.

Conclusion

Achieving systemic impact through investment is not merely an aspiration but a necessity for addressing complex global challenges; without it, the potential of the large pools of well-intentioned capital will never fulfil their potential.

At this inflection point, honesty is required about the true impact of impact investment. The lean systems approach provides a series of practical and pragmatic tools to support this reflection and develop strategies which utilise a systems lens to maximise the potential of investment.

As the financial sector evolves, the introduction of robust standards like SIIS marks a pivotal turning point—offering structure, transparency, and measurable benchmarks for asset managers and owners alike. The collaboration among practitioners, standard-setters, and development partners signals a collective will to move beyond incremental improvements, embedding systems thinking and operational excellence into the very fabric of impact investing.

Moving forward, widespread adoption and continual refinement of such standards will be crucial. Stakeholders must remain committed to fostering the skills, resources, and collaborative frameworks required to scale truly transformative change. By bridging the gap between ambition and practice, the impact investment community can unlock new capital flows, empower innovative business models, and ensure that the pursuit of profit is inherently aligned with the advancement of sustainable, equitable outcomes for society at large.