For impact investors to generate measurable social returns, it’s critical to identify an investment strategy that specifies how the intended social outcome will be achieved. At Impact Engine, we find it helpful to use a framework that describes the ways in which a company can drive positive impact, which we’ve adapted from “Making Sense of the Many Types of Impact Investing,” authored by Brian Trelstad, Faculty Chair of Harvard’s Advanced Leadership Initiative, Partner & Board Member at Bridges Fund Management and former Chief Investment Officer at Acumen. We’ve summarized the “5Ps of Impact” to help investors evaluate the potential for lasting social return from their impact investments:

People

Businesses that are founded by and/or create opportunity for people historically underserved by existing markets can be categorized as having people-based impact. The potential to create income through jobs, business ownership, and services that increase the likelihood of gainful employment can create lasting change for individuals and their communities. This strategy can be applied to any industry and asset class. In fact, many impact investors consider the ownership and management of their investment funds based on a theory that women and minority fund managers are more likely to invest in women and minority CEOs, thereby creating a multiplier effect of a single fund investment.

People Spotlight: Mosaic Capital Partners

An example of a people-based strategy in our portfolio is Mosaic Capital Partners, an employee ownership-focused private equity firm focused on acquiring lower middle market companies through an Employee Stock Ownership Plan (ESOP) buyout. An ESOP is a retirement plan where employees become owners of the company they work for, often through receiving company stock as part of their compensation. Mosaic helps to empower employees while providing business owners an impactful, differentiated change-of-control transaction opportunity. Mosaic’s inaugural fund has created 3,000+ employee owners, with target ESOP account balances of 2-4x annual income in a five-year period.

Place

Companies that base their operations where jobs are scarce or offer little upward mobility can drive economic development and positive impact in a specific place. Developing markets and Opportunity Zones in the U.S. are both examples of this. Given the vast populations in these markets and the potential to meaningfully change employment levels, median incomes, and standards of living, the potential scope of place-based impact is attractive to mission-driven investors. Companies and investors often encounter hurdles, however, due to the systemic challenges facing these communities. For example, the need for high levels of job training and robust infrastructure in under-resourced areas may cause operational friction. To help address these challenges, cross-sector partnerships with government agencies and nonprofits may be necessary components of an investment strategy.

Place Spotlight: Chicago Community Loan Fund

An example of a place-based impact investment is the Chicago Community Loan Fund (CCLF), which provides flexible financing and technical assistance for community development projects that benefit low- to moderate-income neighborhoods, families and individuals throughout the Chicagoland area. CCLF has funded 12,799+ units of housing, 13.3M square feet of commercial real estate and provided 7,884 jobs in Chicago since its founding in 1991.

Process

Impact at the process level refers to a company’s management practices. This may include employee wellness, manufacturing and supply chains, and other operational processes. All for-profit businesses can optimize environmental, social, and governance (ESG) practices in their operations, therefore process-based impact investing strategies can be applied across sectors and stages of growth. Many funds integrate ESG factors when making investment decisions to manage risk; however, to meet our definition of impact, an investment strategy should include active involvement with the business through the board of directors, a control investment, or other ways of directly influencing strategic decisions. Given this high hurdle for efficacy, investment funds claiming impact at the process level need to be evaluated critically.

Process Spotlight: Patagonia

Patagonia a prominent retailer of outdoor recreation clothing and equipment, cares deeply about its internal and external operational processes. The company engages in a range of due-diligence activities to promote and sustain fair labor practices, safe working conditions and environmental responsibility in the supply chains that make its products. The company is a certified B Corporation and also owned by the Patagonia Purpose trust (a Perpetual Purpose Trust)/Holdfast Collective, both of which serve to reinforce its commitment to do business in a sustainable manner for people and the planet.

Product

Companies offering products and services that directly create positive impact benefit from a reinforcing tie between revenues and social good. Examples include companies providing access to energy efficient products, healthcare services, and educational technology that drives better outcomes for students. Since customers purchase the company’s product based on its efficacy, management teams are incentivized to continuously strengthen and demonstrate the impact of their products, and impact cannot be easily decoupled if the company were to be acquired. Product-based impact does limit the investment universe, as not all companies offer goods and services that directly contribute positively to society. Impact investors thus need to consider the implications of sector concentration and look for other diversification methods within or outside their impact investing portfolio.

Product Spotlight: PadSplit

At Impact Engine, we focus primarily on product-based impact. We’re proud to be investors in PadSplit a software platform that enables privately-owned affordable housing. PadSplit supports property owners and developers in converting single family homes into co-living spaces, and its tech-enabled marketplace helps connect the low-income workforce with these affordable housing options. To date, the company has helped 38,000+ members find housing, created 16,000 new affordable housing units for residents, and saved taxpayers more than $4 billion.

Paradigm

A paradigm is a model or pattern of doing business, and investment strategies looking to disrupt existing paradigms and create change at the systems level can be a powerful driver of innovation and impact. Paradigm-based investing strategies aim at improving the system for the better, and might be based upon shifting ownership structures to enable greater wealth creation or intentionally seeking to invest in companies disrupting existing industries in a way that enables greater access/participation.

Paradigm Spotlight: Glimpse

A company from our portfolio that aims to create a systems-level change is Glimpse (which was acquired by Level Data in 2023). Traditional educational achievement products and services simply present outcomes without capturing the data in the context of what educators or programs did and how effective their actions were at impacting student outcomes. At the same time, traditional financial systems have lacked the correlations between expenditures and student achievement. As a result, districts have struggled to align their spending on products and programs that produce the best student outcomes. Glimpse enables schools and districts to connect their spending with educational outcomes, with the potential to change the way budgeting decisions are made to prioritize education ROI.

Impact investors differ from traditional investors in their intent to generate a measurable social impact in addition to financial returns. The ‘impact’ component of the investment strategy is essential and must be evaluated with the same rigor as the pure financial investment thesis. All 5Ps are valid strategies for generating positive impact and can provide a valuable basis upon which to develop an impact investing strategy.

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This article was originally published in 2018 and updated in April 2025.