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Impact Due Diligence Checklist

Comprehensive 50-point checklist for evaluating impact claims, theory of change, and measurement capabilities of prospective investments. A practical tool for impact investors.

18
Pages
50
Checklist Items
6
Categories
Dec 2024
Published
Due Diligence Progress 0 of 50 items completed

Introduction

Impact due diligence extends traditional financial and operational due diligence to evaluate the credibility, materiality, and measurability of a company's impact claims. This checklist provides a systematic framework for assessing prospective investments across six critical dimensions.

How to Use This Checklist: Click each checkbox as you complete the due diligence item. Your progress is saved automatically. Critical items (marked in red) are essential for any impact investment. Important items (marked in yellow) should be addressed for most deals. Standard items (marked in blue) provide additional depth.

Scoring Guide

CRITICAL

Must pass for investment

IMPORTANT

Significant consideration

STANDARD

Best practice item

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1. Impact Thesis & Intentionality Is impact central to the business model?

Is impact explicitly stated in the company's mission and founding documents? CRITICAL
Review articles of incorporation, investor presentations, and website. Impact should be foundational, not retrofitted.
Does the business model inherently create impact through core operations? CRITICAL
Impact should flow from what the company sells/does, not CSR activities. Evaluate if impact scales with revenue.
Can the company articulate a clear theory of change? CRITICAL
Theory of change should connect: Inputs → Activities → Outputs → Outcomes → Impact. Logic should be credible.
Are impact objectives integrated into strategic planning and board discussions? IMPORTANT
Request board minutes or strategy documents. Impact should be discussed alongside financial performance.
Does management compensation include impact-linked components? IMPORTANT
Impact KPIs in bonus structures signal authentic commitment. Review employment agreements.
Has the company maintained impact focus through pivots or challenges? STANDARD
Interview founders about decisions that tested impact vs. profit trade-offs. How were they resolved?
Do founders have personal connection or experience with the problem? STANDARD
Lived experience often correlates with sustained commitment. Understand founder motivation.

👥
2. Stakeholder Impact Assessment Who benefits and how?

Are primary beneficiaries clearly defined and underserved? CRITICAL
Identify who benefits. Are they low-income, marginalized, or lacking access? Verify with demographic data.
Is there evidence of actual benefit to stakeholders (not just intent)? CRITICAL
Request customer surveys, testimonials, or outcome studies. Third-party validation is strongest.
Has the company assessed potential negative impacts on any stakeholders? IMPORTANT
Impact can have unintended consequences. Has management considered job displacement, environmental effects, etc.?
Are stakeholders involved in product/service design and feedback? IMPORTANT
Human-centered design principles suggest better outcomes. Review product development process.
Does the company have grievance mechanisms for affected communities? STANDARD
Channels for feedback and complaints indicate accountability. Review customer service processes.
Are employment practices fair for workers throughout the value chain? IMPORTANT
Review labor practices, supplier standards, and any certifications (Fair Trade, B Corp, etc.).
Is there diversity and inclusion in leadership and workforce? STANDARD
Request demographic data on management, board, and employees. Compare to industry benchmarks.
Does the company pay living wages in all operating geographies? IMPORTANT
Compare compensation to local living wage benchmarks. Include contractors and gig workers.

📊
3. Impact Measurement & Data Can impact be credibly measured?

Does the company track impact metrics systematically? CRITICAL
Request impact data history. Should be collected regularly, not created for fundraising.
Are metrics aligned with IRIS+ or other recognized frameworks? IMPORTANT
Standardized metrics enable benchmarking and credibility. Custom metrics need clear definitions.
Is there a clear link between metrics tracked and claimed outcomes? CRITICAL
Outputs (products sold) ≠ Outcomes (lives improved). Evaluate if metrics capture actual change.
What is the data collection methodology and is it reliable? IMPORTANT
Review data sources (direct measurement, surveys, estimates). Assess potential for manipulation.
Has impact data been verified by third parties? STANDARD
Independent audits or certifications (B Corp, GIIRS) provide validation. Self-reported data needs scrutiny.
Are baselines established for measuring change over time? IMPORTANT
Impact requires comparison: before/after, with/without intervention. Baselines enable attribution.
Does the company report negative results or failed initiatives? STANDARD
Transparency about challenges indicates authenticity. All-positive reporting is a red flag.
Is there dedicated staff or resources for impact measurement? STANDARD
Impact measurement requires investment. Ad-hoc approaches often produce unreliable data.

➕
4. Additionality & Contribution Would this impact occur without your investment?

Would this company struggle to raise capital from conventional sources? IMPORTANT
Financial additionality is strongest when impact capital is essential, not just convenient.
Does the investment enable expansion to underserved markets/populations? CRITICAL
Impact additionality: Are you enabling outcomes that wouldn't otherwise occur?
What non-financial support will you provide to enhance impact? IMPORTANT
Board participation, technical assistance, network access can multiply impact beyond capital.
Is the company demonstrating innovation in solving the problem? STANDARD
Novel approaches may have greater additionality than incremental improvements to existing solutions.
Would market forces eventually solve this problem without intervention? IMPORTANT
Highest additionality where market failures persist. Assess if mainstream capital will follow.
Can impact scale beyond what current resources allow? IMPORTANT
Investment should unlock growth. Assess if additional capital translates to additional impact.

🌍
5. SDG & Framework Alignment Alignment with global impact frameworks

Can the company map its impact to specific SDGs and targets? IMPORTANT
SDG alignment should be specific (targets, not just goals) and material to business operations.
Is SDG contribution measurable using recognized indicators? IMPORTANT
232 official SDG indicators exist. Can company metrics connect to these global standards?
Are there potential negative impacts on other SDGs? CRITICAL
SDGs interconnect. Progress on one shouldn't undermine others (e.g., jobs that harm environment).
Does the company hold relevant certifications (B Corp, Fair Trade, etc.)? STANDARD
Third-party certifications provide baseline assurance. Review certification scope and requirements.
Is there alignment with IFC Performance Standards or similar frameworks? STANDARD
For EM investments, IFC standards address environmental and social risk management.
Has the company adopted formal impact management commitments (OPIM, etc.)? STANDARD
Commitments to Operating Principles for Impact Management signal systematic approach.

⚠️
6. Impact Risks & Sustainability Will impact persist and grow?

Is impact sustainable beyond the investment period? CRITICAL
Will impact continue after exit? Consider business model durability and market dynamics.
What happens to impact if the company is acquired or goes public? IMPORTANT
Exit scenarios can dilute impact. Consider mission lock mechanisms, B Corp status, or buyer criteria.
Are there execution risks that could prevent impact from materializing? IMPORTANT
Impact projections depend on business success. What could go wrong?
Could external factors (regulation, competition) undermine impact? STANDARD
Market changes, policy shifts, or competitive dynamics may affect impact potential.
Is there evidence of impact washing or greenwashing concerns? CRITICAL
Red flags: impact claims without evidence, marketing-driven messaging, inconsistent narrative.
What reporting commitments will the company make to investors? IMPORTANT
Negotiate impact reporting requirements in investment documents. Define metrics and frequency.
Are there mechanisms to address impact drift over time? STANDARD
Board seats, covenant rights, or other governance tools can protect impact mission.
Has the company considered climate and environmental risk exposure? IMPORTANT
Physical and transition climate risks may affect long-term viability. Review risk assessment.

Summary & Investment Decision

After completing this checklist, compile findings into an impact due diligence memo that addresses:

  1. Impact Thesis Strength: Is the impact thesis credible, material, and measurable?
  2. Key Impact Risks: What are the primary risks to achieving projected impact?
  3. Additionality Assessment: What unique value does your investment bring?
  4. Measurement Plan: How will you track impact throughout the investment?
  5. Exit Considerations: How will impact be protected through exit?

Investment Committee Recommendation: Include an explicit impact rating alongside financial analysis. A 1-5 scale or "Green/Yellow/Red" framework helps standardize decision-making across the portfolio.

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CITE THIS WHITE PAPER

Impact Deals. (2024). Impact Due Diligence Checklist. Global Capital Network. Retrieved from https://impactdeals.org/insights/white-papers/impact-due-diligence