"Additionality is about whether a positive outcome - like housing for women escaping domestic violence - would have happened without the investor's involvement. The idea of additionality helps us show our investors how we create change."

The Global Impact Investing Network, defines impact investing as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.

Whereas ESG investing is a framework to help stakeholders understand how an organisation manages environmental, social and governance risks, impact investing goes a step further by seeking investments that contribute to measurable social and/or environmental impact. Read about six important differences between ESG and impact investing in this Stanford Social Innovation Review article "ESG is not impact investing, and impact investing is not ESG".

The "industry standard" mapping of the range of risk/return strategies that exist from traditional to impact investing was published in 2015 by Bridges Fund Management.

What are the characteristics of impact investing?

• Intentionality - intent to achieve a social or environmental goal is clearly expressed and the investor identifies outcomes that will be pursued.

• Additionality - thesis or narrative describes how the investor’s actions will help achieve the goal and how the outcome would not have occurred without the investment.

• Measurement - impact measurement framework in place to assess the level of expected impact and monitor progress against the goal.

Additionality – also known as investor contribution – is key to what is different about impact investing. It means using capital to design impact solutions in a way that it isn’t currently used, or tackling problems that aren’t currently being addressed. It refers to the contribution made by an investor or a company in tackling a societal challenge, where the positive outcome would not be achieved without that contribution (i.e. without the investor's role or the actions of the enterprise).

The topic is increasingly important, supported by regulators including the FCA, SEC and ESMA moving towards new rules for who can use the term ‘impact’ in investment product labels. The idea of additionality emphasises that investor contribution needs to be central to how a fund's impact is described, while the additionality of the underlying investment is also important.

In thinking about investor additionality, two primary aspects are usually considered:

• Financial additionality - the impact is generated by financing a project or activity which would not have occurred without the allocation of capital

• Non-financial additionality (e.g. via engagement) - the impact is driven by the investor's activities in contributing to the positive outcome (beyond simply investing in the company)

Ultimately, impact investing is more than just ‘buying’ exposure to already impactful companies and needs to encompass the role of investors in ‘enabling’ that impact. The Good Economy describe this as "pushing beyond intentionality (what investors say they do) towards real-world change (what they actually do)."