Regardless of whether it carries the label “impact,” investment capital generates social and environmental outcomes. This reality presents a challenge for impact investing: if all investors create impact, what makes impact investing distinct?

The concept of additionality answers this question by framing an investment’s impact against a counterfactual where the impact investor is absent. In that hypothetical scenario, would a non-impact investor fund the deal on identical terms? Would the investee’s impact change? Simply put, the principle of additionality challenges impact investors to make a plausible case that their impact exceeds what would occur without them.

The importance of additionality has grown as the impact investing field has matured, with organisations such as the UN Principles of Responsible Investment, the Global Sustainable Investment Alliance, and the CFA Institute calling on impact investors to play “a contributory or catalytic role in generating an improvement over the status quo.” Yet many impact investors remain unclear on what additionality means in practice. To address that confusion, I propose a simple framework outlining the primary pathways to additionality: Sacrifice, Savvy, and Support.

The Sacrifice approach acknowledges that many high-impact ventures cannot generate returns that satisfy conventional investors. In such cases, impact investors can achieve additionality by accepting lower financial returns or greater risks than mainstream investors would tolerate. For example, the Barra Foundation makes loans to community development initiatives with interest rates often under 3%. These investments reflect a recognition that early-stage community projects in disinvested neighborhoods frequently lack revenue models to service market-rate debt while maintaining their focus on critical needs.

Sacrifice can also involve accepting investment risks that outweigh expected financial returns. For instance, catalytic investment programmes built by Prime Coalition support climate startups with long development timelines and elevated risk profiles that would likely deter conventional investors. Prime Coalition seeks out these disproportionate risks because of the potential for outsized climate impact.

The Sacrifice approach can enable important impact-driven projects and help unlock commercial capital through “crowding in” effects. To illustrate, early impact investors in microfinance accepted lower returns while demonstrating that lending to underserved populations can be financially viable. This evidence helped attract mainstream investors who now see microfinance as an established asset class. Impact investors can also help bring in commercial investors right away by taking on more of the risk in a given investment. In blended finance models, an impact investor often pledges to absorb early losses in a project, making the investment more attractive to conventional investors who can then participate with less risk.

While many impact investors aspire to market-rate returns, Sacrifice often provides the most reliable basis for claiming additionality. After all, if an investment offers competitive risk-adjusted returns, we should generally expect conventional investors to pursue it. The clearest way to demonstrate that you’re not simply duplicating the work of conventional investors is to accept costs that would deter them.

However, the use of concessionary capital requires careful consideration of market distortion risks. Since below-market investments function as subsidies, they can undermine market development by creating unsustainable advantages for specific players or reducing pressure for operational efficiency. Impact investors must therefore be especially thoughtful about when and how they deploy Sacrifice approaches.

Savvy: Identifying overlooked opportunities

Through Savvy, impact investors identify opportunities that non-impact investors do not pursue only because they overlook or misunderstand them. While Sacrifice involves pursuing opportunities the mainstream investors would reject because of inadequate financial returns, Savvy focuses on finding lucrative but under-the-radar investments.

Savvy can happen in two ways. First, impact investors might have specialised knowledge that gives them privileged access to profitable opportunities. Second, impact investors might accurately assess the risks and returns of opportunities that others misunderstand, perhaps because of biases or blind spots in traditional analysis. As one industry report put it, “many impact fund managers develop deep sector expertise that enhances their ability to find value in, and execute deals from, traditionally untapped markets.” For example, Acre Impact Capital aims for both market-rate financial returns and additionality by relying on what it calls “strong relationships and partnerships with key players in the export finance ecosystem [that] provide us with privileged access to a diverse pool of curated opportunities across Africa.” As illustrated by Acre, the Savvy advantage often emerges from impact investors’ sustained presence in underserved markets or specialised sectors.

While many impact investors aspire to achieve additionality through Savvy, this pathway presents significant challenges. First, it’s difficult to demonstrate that non-impact investors truly would not have identified or correctly valued an attractive opportunity. Moreover, we lack rigorous evidence on how often impact investors actually have superior insight compared to non-impact investors—or, for that matter, how often they actually overvalue opportunities because of the appeal of impact. Still, when impact investors genuinely identify overlooked market-rate opportunities, they achieve an especially compelling form of additionality. Success stories in this category can help demonstrate that impact investing need not involve financial trade-offs.

Support involves influencing investee strategy or operations to enhance impact in ways that conventional investors would not pursue. Support includes providing technical assistance for impact measurement and management, helping companies develop more sustainable or inclusive business practices, or steering strategic decisions toward greater impact even when not aligned with commercial optimisation. Support might involve informal guidance or formal governance (e.g., board membership), reflecting impact investing’s strong emphasis on not just measuring but also managing impact.

In addition to direct influence, impact investors can leverage their networks to connect portfolio companies with other impact-oriented partners, customers, and resources. This network-building aspect of Support can be particularly valuable for early-stage companies establishing themselves in impact-oriented markets.

Importantly, Support requires more than conventional value-adding activities that any profit-driven investor might provide; it specifically refers to interventions driving impact beyond what conventional investors would achieve. SJF Ventures exemplifies this distinction through “impact-oriented value creation projects.” While conventional investors might help with operational efficiency or market expansion, SJF tries to “bend the curve on impact” – pushing investees beyond the linear relationship between financial growth and social/environmental outcomes that many impact investors target.

Unlike Sacrifice and Savvy, which represent mutually exclusive approaches, Support can complement either of the other pathways. Impact investors can pursue Support alongside Sacrifice or combine it with Savvy. This versatility makes Support particularly valuable as a complementary strategy.

While Support represents a theoretically compelling pathway to additionality, achieving it in practice can be challenging. Many investor activities that enhance impact also improve business performance, making it hard to distinguish truly additional assistance from standard investor assistance. Moreover, steering companies toward greater impact in ways not clearly aligned with financial performance can require substantial influence, which is typically available only to investors with large ownership positions. Such efforts may face resistance from management teams and co-investors, who may worry that impact-oriented changes could reduce profitability, slow down growth, or limit exit opportunities. Despite these challenges, Support remains an important potential pathway to additionality, particularly for impact investors with the influence and capabilities to meaningfully shape investee behavior.

Impact investors create value beyond conventional markets by adopting differentiated practices. Yet being different from conventional investors is insufficient for additionality. True additionality means generating meaningful impact that would otherwise not occur—whether by accepting reduced returns, identifying overlooked opportunities, or providing specialised support.

The framework presented here offers a foundation for more precise thinking about additionality in impact investing. By organising potential contributions into these three distinct pathways, it helps investors clarify exactly how their capital might create unique value beyond conventional markets. This precision matters not only for guiding individual investment decisions but also for articulating the distinctive role of impact investing within the broader financial landscape.

Maoz (Michael) Brown is head of research at the Impact Investing Research Lab, a division of the Wharton ESG Initiative.