What do we mean by “impact-based” business?

Impact-based business refers to a type of business model. In such an impact-based business model, the delivery of positive impacts is part of what drives the business model and creates financial value. In these business models, impacts are not externalities. In fact, the more positive impact is delivered, the more cash flow and revenue is generated. The two are therefore directly linked.

How does impact-based business and finance relate to the financial valuation of impacts?

Both aim to drive positive impacts and reduce negative impacts but approach the challenge in different ways: valuation seeks to do this by defining and assigning a value to externalities, whereas the development of impact-based business models circumvents the problem of costing externalities altogether by adopting business models where impacts are value drivers as opposed to externalities(as described above).

See more on the concept of impact-based business models in Rethinking Impact to Finance the SDGs, the paper that outlines our unique theory of impact.

Is impact-based finance the same as impact investing, sustainability-linked finance, or social impact bonds?

No. When we talk about impact-based finance we are really talking about the business model of the entity being financed or invested in. The terms impact investing, sustainability-linked finance and social impact bonds describe the financing and/or investment products or financing solutions themselves. They are not in contradiction: impact-based business models could in principle be served by impact investors, sustainability linked products or social impact bonds.

What about “positive impact finance”? Is all positive impact finance (as per the Principles for Positive Impact Finance) meant to be financing only impact-based business?

No. Positive impact finance is simply any financing or investment that “serves to deliver a positive contribution to one or more of the three pillars of sustainable development (economic, environmental and social), once any potential negative impacts to any of the pillars have been duly identified and mitigated”, as per the PI Principles.

This can be achieved by financing regular business models, not only impact-based business models. This broad definition purposefully enables us to engage with mainstream business and finance. In doing so,  the Principles can effectively promote impact from two angles: by improving the impact performance of current business models on the one hand, and by supporting new, impact-based business models on the other.

How can I validate my methodology and or my products as compliant with the Principles for Positive Impact Finance? Will UNEP FI provide certification?

UNEP FI is a standard setting body. It is not a certifying entity. Auditors can be called on to provide third party assurances on your methodology and/or a specific product. A set of Model Frameworks are available to provide guidance on how to align with the Principles in the context of corporate finance and investments with unspecified use of proceeds, and project finance. The UNEP FI Secretariat can be called on for further interpretative guidance. Prototype tools for impact analysis can also be referenced for guidance.

May I use the PI logo?

The PI logo can be used in the following cases:

  • Entities actively involved with the PI Initiative, for instance via a Working Group, can use the logo to communicate about their involvement (e.g. in presentations, reports, etc.)
  • Entities seeking to apply the PI Principles, for instance in their client analysis, or for product development, can use the logo to communicate about the Principles (e.g. in presentations, reports, product documentation), however the logo should not be used to indicate or suggest compliance with the Principles unless such compliance has been duly ascertained by an auditor (as outlined above).