Sir Ronald Cohen, a pioneer in impact investment, advocates for a profound shift towards investments that generate positive social and environmental impacts alongside financial returns. Following his principles, investors should place equal importance on impact and financial metrics when evaluating investment opportunities. We present a due diligence checklist for a data room that incorporates the key principles of Ronald Cohen’s impact investment approach.

Impact Investment Thesis

1. Clearly defined social/environmental objectives: Assess whether the company or project has a clear and specific mission to address social and/or environmental challenges.
2. Measurable impact: Examine whether the company has established quantifiable, measurable impact targets that align with its mission and can be tracked over time.

Financial Performance

3. Financial sustainability: Evaluate the company’s financial health, including profitability, cash flow, and financial stability, to determine if it can sustain its operations and create long-term value.
4. Scalability: Assess the company’s potential for growth and its ability to scale its impact while maintaining financial stability.
5. Exit strategy: Consider the company’s exit strategy, ensuring it aligns with impact objectives and provides an opportunity for investors to realize financial returns while maintaining or enhancing the company’s social/environmental impact.

Impact Measurement and Reporting

6. Impact metrics and reporting: Verify that the company employs relevant, transparent, and standardized metrics to measure and report its social and environmental impact. Examples include the Global Impact Investing Network’s (GIIN) Impact Reporting and Investment Standards (IRIS+) and the UN’s Sustainable Development Goals (SDGs).
7. Third-party validation: Look for external validation, such as certifications or ratings from recognized organizations, that support the company’s claims of social/environmental impact.
8. Continuous improvement: Assess the company’s commitment to continuously monitor, evaluate, and improve its impact performance based on feedback and lessons learned.

Corporate Governance and Risk Management

9. Impact-driven corporate governance: Evaluate the company’s governance structure to ensure that impact considerations are embedded in decision-making processes, including the composition of the board of directors and executive management.
10. Risk management: Review the company’s approach to identifying, assessing, and mitigating risks that could affect its financial performance and impact goals.

Stakeholder Engagement

11. Stakeholder inclusivity: Examine the company’s efforts to engage with diverse stakeholders, including beneficiaries, local communities, employees, and suppliers, to understand their needs and integrate their perspectives into decision-making processes.
12. Collaboration and partnerships: Assess the company’s willingness and ability to collaborate with other organizations, such as governments, non-profits, and private sector partners, to amplify its impact.

Conclusion

By incorporating Ronald Cohen’s principles into the due diligence process, investors can make more informed decisions that prioritize both financial returns and positive social and environmental impacts. This impact investment due diligence checklist provides a comprehensive framework to assess investment opportunities in line with the growing emphasis on achieving a more sustainable and equitable future.