Impact IRR: Leveraging Modern Portfolio Theory to Define Impact Investments

Abstract

The impact investment market has an estimated value of almost $1.6 trillion. Significant progress has been made in determining the financial returns of impact investing. Investors are still, however, in the early stages of determining impact return. In this study, the author proposes the use of impact internal rate of return (impact IRR) to evaluate and monitor impact investments. This approach, which utilizes components of modern portfolio theory, adapted financial tools, and existing datasets, is demonstrated herein through initial use cases and examples showing how it can be employed to optimize impact.