Beyond ESG: Embedding Impact in Investment
Our society faces a combination of complex social and environmental challenges. While ESG criteria help assess certain aspects of corporate responsibility, they often address only the symptoms of contemporary issues. Impact investing, on the other hand, aims to go further by tackling the root causes of societal and environmental imbalances.
In this context, impact investment funds go beyond ESG by building their strategy on a strong belief: capital is a powerful driver of societal transformation. By scaling up businesses that provide solutions to today’s social and environmental challenges - in sectors like healthcare, education, circular economy, and agriculture - impact investing helps expand the share of unlisted companies that contribute to a sustainable and resilient society. Far from opposing profitability and impact, these funds demonstrate that it is possible to combine strong growth with positive transformation. To achieve this, they place impact at the heart of their identity, both in their operational model and investment approach.
Investment Funds structured around Impact
An increasing number of impact investment funds are applying the principles they advocate to themselves, in addition to investing in high-impact businesses. In France, 29 asset management firms have adopted the “Société à Mission”1 status, while 114 are B Corp certified across Europe2. Moreover, more than 850 funds comply with Article 9 of the SFDR regulation3, requiring them to measure their carbon contribution alongside offsetting. By integrating these obligations and accountability measures into their operations, these funds commit to going beyond basic ESG metrics to actively drive necessary social and environmental transformation.
For funds that have adopted the “Société à Mission” framework, the creation of an external governance body, known as the impact committee, illustrates this commitment. Composed of independent experts, this committee validates fund actions and ensures that their mission is reflected in strategic decisions. This framework reinforces rigour and ambition in achieving meaningful, measurable impact.
Aligning interests is another cornerstone of these models. In several firms, the investment teams’ variable compensation (carried interest) is linked 50% to the impact performance of their investments - as seen with Citizen Capital, Ternel, and Raise Impact, for example. This approach strengthens coherence between financial objectives and social and environmental goals.
Impact at the Core of the Investment Process
From the outset, even before the investment decision is made, each impact fund applies a tailored methodology to assess the transformative potential of prospective investments. At Citizen Capital, for instance, impact analysis is based on a six-dimension framework, called the Impact Radar. This diagnostic tool assesses the depth of the need addressed by the solution, its transformative potential, its accessibility, and associated risks. The objective is to develop a clear conviction about the impact potential of the investment opportunity.
Once this evaluation is complete, a crucial step involves formalising the entrepreneurs’ commitment through an impact business plan. This document, co-developed with the leadership team, defines 2 to 3 key objectives with corresponding indicators that demonstrate mission achievement and impact. These commitments are monitored over time by a dedicated team in close collaboration with the operational teams of the portfolio companies.
Tailored Support throughout the Investment Lifecycle
Beyond rigorous selection, Citizen Capital plays an active role throughout its relationship with funded companies. Firms receive support to structure their mission, integrate it into their governance, and ensure strategic decisions align with initial commitments. For some businesses, this may involve transitioning to a “Société à Mission” status or obtaining B Corp certification.
A genuine partnership is formed between the investment team and the impact team. By addressing a fundamental need, these solutions are well-positioned to tap into real market depth and thus achieve strong growth potential.
Ensuring Impact Continuity after Exit
Citizen Capital’s commitment does not end with the sale of its shares. Particular attention is given to ensuring the continuity of the company’s mission post-exit. To achieve this, a dedicated mission clause may be included in the shareholder agreement, ensuring the company’s founding principles endure, even after a change of investor.
By structuring their approach end-to-end - from company selection to long-term development - impact investment funds demonstrate that embedding impact can align with sustainable performance goals. Far from being a mere marketing narrative, impact investing is emerging as a powerful force for economic and social transformation. As environmental and societal challenges intensify, this approach may well become the investment model of tomorrow.
Laurence Mehaignerie, Co-Founder & Partner, Citizen Capital
1Mission-driven companies source:https://www.observatoiredessocietesamission.com/societes-a-mission- referencees/?jsf=jet-engine&tax=wntat_sector:654
2B corp source: https://www.bcorporation.net/en-us/find-a-b-corp/?refinement[countries][0]=France&refinement[industry][0]=Equity investing - Emerging Markets&refinement[industry][1]=Equity investing - Developed Markets
3Article 9/SFDR sources: https://placement.meilleurtaux.com/placement- financier/autres-guides-placement/sfdr-article-9.html, https://www.novethic.fr/ decryptages-dexpert/etudes/les-fonds-article-9-sont-encore-loin-des-exigences- du-reglement-sfdr, https://fr.apiday.com/blog-posts/a-guide-to-the-sfdr