Non-Concessionary Impact Funds: What and Why?

Non-concessionary impact funds are a type of private investment fund that aims to achieve positive social, environmental or other beneficial outcomes while offering market-rate financial returns to investors. They differ from concessionary impact funds, which may accept lower financial returns to achieve their nonfinancial goals.

Some of these funds invest in particular sectors, such as renewable energy, affordable housing, health care, education or sustainable agriculture, where the sector focus is the primary driver of the nonfinancial goal. In other cases, the funds may seek to benefit particular communities, such as those that are underserved by financial markets, or to ameliorate social ills, such as racial or gender-based wealth gaps.

As to the latter, for instance, particular funds may seek to assist in the conversion of businesses into employee-owned enterprises. This helps workers build equity and gain a stake in the success of their company. Many of these businesses may have a significant proportion of workers of color and women employees.

Other funds may help finance ethnically or gender diverse-owned companies, as well as companies that provide services to diverse communities. They also may back companies that provide good health benefits and competitive pay.

Non-concessionary impact funds use the powerful tools of capitalism to socially or ecologically beneficial ends. When accompanied by rigorous impact measurement and offering a variety of attractive investment strategies, these funds are increasingly applying those tools to drive benefits to stakeholders beyond their direct investors. While some of these funds exist as one option in a broad menu from diversified asset management firms, others are offered by sponsors with a specific and particular focus.