There is $345 trillion of “investable wealth” globally. When sources of positive social and environmental impact are being held back, the issue is not the amount of capital available, but a lack of the right structures to channel it into the enterprises, projects and intermediaries delivering positive outcomes.
This is particularly true in emerging and underserved markets, where significant pools of capital exist but are often disconnected from local impact opportunities. In Africa, institutional investors hold more than $2 trillion in assets, but regulatory constraints, risk perception, liquidity requirements and limited investable structures limit where that capital can flow.
Impact vehicles can overcome these barriers. By pooling capital from multiple sources, with varying financial and impact goals, they can move capital towards providers of social and environmental impact.
But impact vehicles can be complex to build, not least because they involve aligning a broad range of stakeholders, while responding to local market realities, governance requirements, and the real or perceived risks that often prevent capital from flowing.
Drawing on work across the 48-country GSG Impact Partnership, this piece lays out six practical steps for building an impact investment vehicle – from identifying market failures to designing financial structures to engaging the right capital providers. Our goal is to give practitioners a replicable framework for getting capital to where it is needed most.
We have abundant evidence of what works: from mobilising domestic pensions in Ghana, to using dormant assets in Japan, developing wholesaler models in Canada, and deploying public capital to catalyse impact investment in Spain.
The following steps reflect what we’ve seen work in practice. It’s not a fixed sequence: activities often happen in parallel, assumptions evolve, and each vehicle follows its own path. Most crucially, the investment strategy and impact strategy must be developed in parallel to ensure capital is intentionally directed toward clear social and/or environmental outcomes.
1. Identify the market opportunity
Where is capital failing to reach the people, companies or activities generating social or environmental value? That’s the central question. Current market failures are your market opportunities.
Ask yourself:
- On the demand side, what groups of investees struggle to access finance due to inappropriate ticket sizes, tenor, risk perception, sector focus, currency, or lack of suitable instruments?
- On the supply side, who has capital that isn’t flowing to these places due to risk/return expectations, liquidity requirements, or transaction structures, or limited track records? What types of capital are missing in the market? Is there bank lending but a lack of equity investments, is there capital for mature companies but a lack of early-stage capital?
Demonstrating that your impact investment vehicle would help deliver national development priorities is a great way to encourage public sector support.
2. Build partnerships
No single organization builds an impact investment vehicle alone. Identify the capabilities needed across the vehicle lifecycle, including investment structuring, fundraising, investor relations, impact expertise, fund management, legal and regulatory support, and operations. Public sector partnerships may be needed where public capital, guarantees or policy support are part of the vehicle’s design.
Engage partners early to co-design the vehicle. It helps test assumptions, reflect market realities, build stakeholder ownership, and strengthen investor confidence before structuring begins. Market builders, including GSG’s National Partners, can act as neutral conveners, bringing together disparate stakeholders such as government, philanthropy and investors.
Above all, establish strong local leadership. Locally embedded sponsors are essential to build trust, navigate institutional realities, and anchor the vehicle in market realities.
3. Design the strategy and structure
The right vehicle structure follows from the market failure identified – whether that means deploying capital directly to investees or indirectly through investment funds, fund-of-funds, specialised financing facilities, or outcomes-based vehicles. International examples can provide useful references, but every vehicle needs to be tailored to local policy environments, investment markets, and impact ecosystem maturity.
The target investee’s financial needs should determine the financial instruments used. Key questions include:
- How much capital is needed, over what timeframe, and what risk/return profile does the investee represent?
- Is there a greater need for debt, equity, or guarantees?
- Would more flexible, or hybrid, structures better fit varying risk profiles, cash flows, and growth trajectories?
Allowing instruments, ticket sizes and beneficiary types to adapt to market needs over time can improve uptake and investor confidence.
The vehicle’s own capital structure must work for investors too. Blended finance approaches, including catalytic capital, risk-sharing mechanisms, results-based capital, and technical assistance can improve risk-return dynamics, strengthen pipeline performance, and support both financial and impact objectives.
4. Define the impact strategy
Define your impact thesis, including the impact themes, target stakeholders and intended outcomes. Build an evidence-based theory of change that links inputs such as capital and technical assistance to outputs and outcomes. Honestly assess your contribution, additionality and impact risk.
Your impact measurement and management framework should drive decision-making across the full investment cycle, including screening, due diligence, portfolio monitoring, learning and reporting. You will need to select indicators and targets and define data collection, monitoring, and reporting processes. Align with standards and tools such as the Operating Principles for Impact Management and IRIS+ where relevant.
You will also need to establish impact governance, asking:
- How will impact performance be reviewed?
- What corrective actions will be deployed where needed?
- How will trade-offs be handled?
5. Engage capital providers
Start by mapping where capital for the vehicle will come from. Analyze the types of capital required across the risk-return spectrum, the instruments, tenors and terms required, and whether a domestic, international, or mixed approach makes the most sense.
Map specific investors to their mandate, risk tolerance, target ticket size, return expectation, and alignment with the vehicle’s structure. Securing an anchor investor, particularly for a catalytic layer, can build credibility, create momentum and help crowd in additional capital.
Fundraising is usually iterative and time-intensive. It requires a clear value proposition, strong supporting materials (including a pitch deck, financial model and draft term sheet), and a structured pipeline of aligned capital providers.
Investor engagement may prompt refinements to elements of the investment or impact strategy, providing the vehicle’s core objectives are preserved.
6. Build governance, management and operations
As fundraising progresses, your attention should shift to establishing legal, governance, and operational structures.
Choose your legal structure carefully. Consider jurisdiction, regulatory requirements, tax considerations, investor preferences, investor rights, and reporting obligations.
Build out the operating model with the same rigor: Appoint the management team. Define investment and risk processes. And implement systems for pipeline development, due diligence, portfolio management and reporting.
Finally, establish a governance framework with defined roles (for the fund manager, investment committee, and advisory bodies), policies, and impact oversight mechanisms. Transparency and accountability are what gives investors and portfolio companies confidence that the vehicle will deliver on its promises.
None of this is simple. But organizations around the world are proving it can be done. The six steps above reflect hard-won lessons from markets where these vehicles are already working. When we get it right, communities, enterprises and ecosystems finally gain access to the capital they need to grow and thrive.
Charlotte Badenoch leads investable vehicles at GSG Impact. For more information on how to build an impact investment vehicle, see “A Practitioner’s Guide to Impact Vehicle Structuring.”
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
