Impact Investment and Risk Management : Overview and Approach

Managing financial risk has proven difficult over time as evidenced by numerous high profile failures over the recent past including and especially those experienced in the stock market crash of 1987, the financial crisis of 1997-1998 (also known as the “Asian Contagion”) and the 2007-2008 financial crisis (also known as “The Big Short”). Therefore, managing both the financial and social risks inherent in an impact investment, and across a portfolio of impact investments, could be particularly challenging in the absence of a practical framework. This paper profiles a framework for managing Impact Investment Risk as a function of investment risk, social impact risk, and the problem-set common to both. The taxonomy of the framework is illustrated, explained and then applied to a case study. The subject of the case is an actual impact investment that has been profiled as, “The Triple Bottom Line and Investing for Impact: The Case of Afram Plains District of Ghana.” The case analysis leads to a discussion of performance measurement, basic statistical analysis and potential enterprise risk management considerations such as exposure classification and tracking, tail risk analysis, and potential broader uses of impact investment risk information