We want impact bonds to work.

For the organizations raising capital. For the investors providing it. And for the communities and causes that capital is meant to serve.

Impact bonds can do something important that much of private finance cannot: give ordinary people an opportunity to invest directly in organizations and projects they want to support.

That accessibility is one of the strengths of community and impact finance. An investor may be able to finance affordable housing in their neighbourhood, renewable energy in their province, or an organization whose work they have supported for years.

But accessibility also creates a responsibility to make financial risk understandable.

When community finance grows beyond the community

Traditional private-market investing often assumes that people participating in higher-risk or less-liquid securities are institutions, professionals or investors who meet prescribed financial thresholds.

Community and impact securities can reach a much broader audience.

That distinction becomes especially important as community finance grows beyond close-knit communities.

An investor buying a bond from a local church, co-operative, community organization or other institution they know may have direct knowledge of the people and project involved. A security marketed broadly online can reach investors who have no comparable relationship with the issuer and may have limited experience assessing private debt, collateral, refinancing risk or financial statements.

The ability to reach more investors can help important projects raise more capital. But as the market becomes more accessible and more ambitious, the information available to investors needs to grow with it.

Independent credit information should grow with the market.

A good mission doesn't eliminate financial risk.

The issuer's mission can be a powerful reason to invest. That is a strength of impact finance.

But the importance of the mission should not substitute for understanding the financial risk.

ImpactBonds does not judge whether an organization's mission deserves support. We do not assume that a nonprofit, co-operative or social enterprise is risky simply because it operates differently from a conventional corporation. And a credit classification is not a judgment about an organization's intentions, honesty or social or environmental value.

We assess credit, not impact.

Our question is narrower:

Does the available evidence support a reasonable expectation that investors will receive their contractual interest and principal as promised?

There is more than one way to pay investors back.

Impact organizations operate in very different ways, so we do not expect every issuer to demonstrate creditworthiness in the same way.

We look for a credible pathway to repayment.

That pathway might come from established operating cash flow. It might come from contracted revenues, valuable collateral, a government or third-party guarantee, cash reserves, conventional refinancing capacity, asset sales—or several of these working together.

What matters is whether the pathway is identifiable, supported by evidence and appropriate to the terms of the security.

Operating cash flow
Contracted revenues
Collateral and assets
Guarantees and third-party support
Liquidity and reserves
Refinancing capacity

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Rigorous analysis can help good projects raise capital.

Strong impact organizations need access to capital. Investors need enough information to understand the risks they are taking. We believe those goals reinforce each other.

Independent credit analysis can help strong issuers demonstrate why their securities deserve investor confidence. It can help developing issuers understand where additional security, guarantees, reserves, disclosure or financial performance could strengthen an offering. And it can help investors distinguish between capital that has a credible repayment pathway and capital whose financial risk is closer to philanthropy.

Our objective is not to keep capital away from impact organizations.

It is to help investors understand when the evidence supports providing that capital as an investment—and when the financial risk is closer to philanthropy.

Philanthropic Grade is not a judgment on the mission.

A Philanthropic Grade classification does not mean an organization has failed, that its work lacks value or that investors should not support it.

It means something much narrower: the available evidence for that particular security does not meet the ImpactBonds standard supporting a reasonable expectation of repayment of contractual interest and principal according to the security's terms.

Some investors may still choose to provide capital because they believe deeply in the mission. We simply believe they should understand the financial risk when they do.

Where the evidence does support a reasonable expectation of repayment, the security may qualify as Impact Investment Grade.

How our classifications work

Independent by design

Issuers don't pay us to rate their bonds.

ImpactBonds research is produced for investors. Issuers do not purchase classifications or approve our conclusions before publication.

We may work with issuers to clarify information, correct factual errors and obtain additional evidence before finalizing a classification. Engagement helps us be fair and accurate; it does not give an issuer control over the result.

Our analysis follows the evidence.

Support the mission. Understand the risk.

Impact finance works best when investors can support organizations they believe in while understanding what they are being asked to invest in.

ImpactBonds.org exists to make that information easier to find, easier to understand and independently assessed.

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