Understanding the Definition

1. Intentionality & Solutions Orientation

Intentionality is a defining feature of impact investing. Investors must articulate their expected impact ex-ante, typically through a Theory of Change.
This solution-oriented approach focuses on the needs of underserved or vulnerable populations, such as:

• Women-led enterprises in emerging markets,
• Smallholder farmers requiring climate-smart technologies or
• Communities lacking access to essential services.

By including “alongside a financial return,” the definition ensures that financial and impact objectives are treated as complementary, without prescribing a specific level of financial return.

2. Measuring and managing positive & negative Impact

Impact must be actively measured and managed, including the identification of unintended effects.

Examples include:

• Housing investments that incorporate safeguards to prevent displacement and ensure affordability.
• Renewable energy projects that protect ecosystems and avoid harming local communities.

3. Leveraging Financial Market Infrastructure

A distinctive element of the IIAB’s approach is the recognition of financial market infrastructure as a key enabler of impact investing—an area where Luxembourg excels.

Relevant components include:

• Legal structures (e.g., UCITS, SICAVs, RAIFs) that support tailored impact strategies.
• Fund administrators and custodians ensuring robust governance, transparency, and compliance.
• Assurance and audit services that validate impact claims and reinforce investor confidence.

This reflects Luxembourg’s role as a cross-border hub where fund structures and service providers play an essential part in enabling impact outcomes.

4. Financing Companies and Projects addressing social or environmental Challenges

The definition incorporates an asset-level perspective, ensuring that both investor intentions and the solutions financed are aligned.
This approach is inclusive and applies to:

• Companies whose core mission is impact creation,
• Companies not primarily impact-driven but contributing to system change and
• Instruments such as listed equities, blended finance structures, and sustainability-linked loans.

These investments must also measure and manage their positive and negative impacts to verify the real-world solutions they support.

Broader Context and Alignment

While being tailored to Luxembourg, the IIAB definition is compatible with:

• Global Impact Investing Network’s (GIIN) core characteristics of impact investing,
• European Impact Investing Consortium’s (EIIC) work on impact harmonisation,
• Global practices emerging from the GSG Impact network and
• European regulations such as SFDR and the EU Taxonomy.

This ensures that Luxembourg’s framing is globally relevant and internationally recognised.

Historical Evolution of Impact Investing

Impact investing has deep roots in ethical and socially responsible investment practices:

• Early exclusion-based investing originated in religious and ethical movements.
• The 20th century saw the rise of Socially Responsible Investing (SRI), particularly during the civil rights and anti-war movements.
• ESG concepts were formalised in the early 2000s (UN’s Who Cares Wins, UNPRI).
• The term “impact investing” emerged in 2007 at a Rockefeller Foundation conference, leading to the creation of the GIIN and standards such as IRIS and GIIRS.
• Since the 2020s, impact investing has become mainstream, supported by blended finance approaches and the global push to achieve the SDGs.

This evolution informs today’s definition and underscores the growing importance of intentional, measurable impact.

We welcome feedback from stakeholders across the financial sector; should you wish to provide comments on the definition, please contact us at iiab@lsfi.lu.