Impact Strategy at Echo River Capital
Kicking off our impact strategy
We are developing our impact strategy at Echo River Capital to embed impact in each stage of the investment cycle and communicate the outcomes with stakeholders. This blog post marks the kick-off of our strategy enrichment process which is a ‘public learning’ initiative with stakeholders. We invite investors, portfolio companies, customers, and the public to participate and provide feedback. To return this favor, we’ll publish our research and tools that we create through this process. We find this particularly important because there is a lack of impact resources aimed at seed-stage companies and funds, and this is a gap that we aim to fill. In this post we outline how we define impact, our Theory of Change for the fund, and what resources we will leverage to tailor impact for seed-stage companies.
Defining impact with double materiality
As a water technology investor, Echo River Capital is directionally aimed at creating a better world through living in harmony with nature to support water abundance. However, we want to be more explicit about what, who, and how much potential impact we can generate along the way through our portfolio companies. To do this, we define impact using the concept of double materiality which consists of two parts: (1) sustainability factors that are most likely to materially impact the financial condition or operating performance of companies in a given industry, and(2) the impact of the company’s products and services on people and the environment.
At Echo River Capital, we target both aspects of double materiality to ensure that we invest in companies aimed at making market (or better) returns and contribute quantifiably to a better world.
Building the base of our impact strategy
A solid impact strategy is built upon a Theory of Change. This foundational concept of impact investing serves as a tool to help organizations plan how they will create change, assess their effectiveness, and communicate to stakeholders. We use the UN Sustainable Development Goals 6 (Water sanitation and hygiene) and 13 (Climate action) to define how our investments ‘create change.’ The diagram below is a simplified overview of our Theory of Change that we developed using the Global Impact Investing Network (GIIN) framework. We look forward to sharing a more detailed version of our Theory of Change in the coming weeks.
Tailoring existing impact investing resources for seed-stage companies
There is a wealth of impact related resources and frameworks from traditional impact investors and new impact organizations. The GIIN and its IRIS+ system are core resources that we are using at the highest strategic level through to informing our impact measurement and management metrics. We are also conducting a review of complementary resources from other organizations including the Impact Management Platform, which is overseen by the IFC, OECD, UNDP, UNEP FI and others.
Notably, these organizations have created robust frameworks and tools to help investors understand the impact of mature, largely public companies with commercially available products and services. However, our seed-stage portfolio companies aren’t quite at that stage. They can create positive impacts through their inclusive hiring practices, communications and sustainable operations but may not have products and services that create a better world at scale (yet!).
The diagram below provides a high-level methodology of how a company’s inputs and outputs can be translated into outcomes and impacts. Our impact journey involves working to downscale and build out impact frameworks for seed-stage companies to understand their potential outputs, outcomes, and impacts based on their customer segments and potential product/services lines. This will enable them to identify impact areas (e.g. climate resilience and/or place-based benefits), scale impact as they grow, and embed impact measurement and management into their business models.
Source: Adapted from the Value Balancing Alliance
What’s next? Can you help us build it?
Our journey to formalizing impact is just beginning and we would love to hear your reactions and thoughts to our proposed approach outlined here. Please take a few minutes to answer some questions about our proposed strategy and approach above. We will collect feedback and work to evolve the strategy with help from our community.
If you want to get in touch, kindly reach out to us at: firstname.lastname@example.org
We look forward to building out our website, blog, interactive community and newsletter to share our progress on the impact strategy.
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