Common & Emerging Practices: Principle 7

 

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Principle 7: Impact at Exit

 

The Common & Emerging Practices, a new series of resources from the Impact Principles, aims to capture key insights from notable trends in common practices in implementing the Impact Principles by our Signatories and highlight promising emerging practices and key gaps.  By sharing these common and emerging best practices in impact management, we seek to elevate impact practice in the market and ensure that capital is mobilized at scale with integrity to drive meaningful impact outcomes. 

The resources related to Common & Emerging Practices will be released in phases through website publication of initial drafts for each of the nine principles in series, followed by draft and final consolidated reports with stakeholder engagement. 

 

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  Principle 7 description

 

Principle 7 components

 

Overview 

Principle 7 Draft
             Download the full draft of Principle 7

Exit considerations are especially consequential for impact investors, as the realization of their long-term impact objectives often extends beyond their holding period. Exits may carry risks of undoing previously achieved impact or seeing strategies abandoned post exit or under new ownership. For this reason, for impact investors, exits provide an important opportunity to advance the pursuit and preservation of impact while generating a financial return.      

 

CHALLENGES IN THE IMPLEMENTATION OF PRINCIPLE 7

Principle 7 is a work-in-progress for much of the market with unique challenges and varying implementation approaches across asset classes. This in part reflects the impact investing market’s ongoing maturation, as many Signatories are only beginning to navigate exits. Other frequently mentioned challenges in implementing Principle 7 include: 
 

  • Financial trade-off and fiduciary constraints: While a growing number of business models demonstrate strong alignment between impact and financial returns, many impact investors still navigate real or perceived trade-offs where maximizing financial performance may come at the expense of sustained impact. Balancing these dynamics while fulfilling fiduciary responsibilities can be a complex challenge for impact investors.   
     

  • Deal tensions: Various and competing stakeholder interests, demanding timelines, and other transaction pressures can complicate the process of managing exits, which can undermine the ability to prioritize sustained impact or incorporate it into sales documents.
     

  • Knowledge gaps: Limited specialized expertise and practical guidance on exit-related impact practices and examples leave many impact investors insufficiently equipped to effectively integrate impact considerations into their exit strategies and implementation. 
     

  • Market conditions limiting liquidity: Limited exit options or liquidity for impact-driven assets, especially in private markets, can create structural barriers, making it difficult for investors to identify and engage with buyers who align with and value their impact objectives.  
     

  • No established exit policy: The absence of clearly defined and formal exit-related policies or processes during the initial investment phase can restrict investors’ ability to address impact considerations when the time comes to exit, leading to missed opportunities for long-term impact sustainability.   

 

 

KEY OBSERVATIONS IN THE IMPLEMENTATION OF PRINCIPLE 7  


Despite challenges, the latest Disclosure Statements reveal significant progress in managing responsible exits since the launch of the Impact Principles. 

While much of the discourse is still centered around the private equity asset class, an increasing number of investors in private and public debt, real assets, and public equity markets are recognizing the importance of integrating impact considerations when developing and executing an exit strategy. This trend also indicates the potential for exit-related practices to develop and advance in parallel with the impact investing market as it scales and matures. These practices will help investors to proactively address the challenges mentioned above while strengthening the sustained impact potential of their investments.
 

Notable observations include:
 

  1. Across investment lifecycle: Exit considerations are not confined to the final stages of the investment process but integrated across the entire lifecycle of an investment. This approach begins at the pre-investment phase, where exit strategies are embedded into due diligence and deal structuring decisions and continues throughout the holding period and sometimes post-exit.  [See Exhibit 7a]. 


     EXHIBIT 7a.  Integrating Sustained Impact at Exit Considerations Across Investment Lifecycle 
     

Integrating Sustained Impact Across Investment Lifecycle - Examples of Specific Signatory Practices
  1. Asset class variance: The practices for managing exits vary across asset classes given the distinct characteristics of the assets and ownership that influence structure, timing, and process of exit. The differences highlight the need for tailored impact-driven exit approaches that align with the nuances of each asset class.  [See Exhibit 7b]  


     EXHIBIT 7b. Implementation of Principle 7 Across Asset Classes: Example Practices  
     

    Implementation of Principle 7 Across Asset Classes: Example Signatory Practices

 

  1. Formalizing exit intentionality: A formal policy or codified framework can help to institutionalize integrating exit consideration throughout the investment lifecycle with a consistent approach, rigor, and comparability across a portfolio. Some investors with diverse portfolios have developed approaches that can be broadly applied across multiple asset classes. 
     

  2. Influencing factors on exit decisions: Influence over exit decisions depends on a range of factors including ownership share, investment structure, governance, and management alignment, while also balancing against the portfolio’s financial return with regard to fiduciary duty. 
     

  3. Impact as value driver vs. trade-off: While balancing impact against financial return and fiduciary duties is central to exit considerations, there is also an increasing recognition that impact can be a source of financial value creation rather than dilution. Investors also safeguard long-term, sustained impact beyond exit by investing in colinear models where impact is entrenched in the business strategy, as well as by further embedding impact capacity into the business operations.   
     

  4. Role of LPs in sustaining impact at exit: Limited partners (LPs), especially those who are impact-aligned, can play an important role in ensuring that sustained impact is prioritized during exits. LPs may include assessment of exit-related policies or processes in their due diligence of general partners (GPs) or funds as well as in ongoing engagement, monitoring, and reporting.
     

  5. Amplifying impact at exit: Some Signatories intentionally use exits as opportunities to scale and deepen impact beyond their ownership – for example, by facilitating impact secondaries, supporting impact IPOs, or engaging impact-aligned strategic investors as a pathway to accelerate growth while mobilizing scale capital. Re-financing, follow-on financing, or extension in case of debt can be opportunities for deepening impact with investees. 
     

  6. Long-term holding: Certain investments are intended for long-term holding with fewer or no exits and have impact considerations built into the assets. Open-end fund structures, especially in real estate with potential for “buy, fix, and hold” or “build and hold” approaches, may eliminate the risk of hand-off to a non-impact aligned manager.      
     


 

Common, Emerging & Nascent Practices in the Implementation of Principle 7 

Note: The findings and observations are primarily based on analysis of the most recently published 166 Signatory Disclosure Statements at the time of the review in early to mid-2024

 

The disclosures on the implementation of Principle 7 show a spectrum of practices which together reflect the growing sophistication of impact investors in balancing the long-term sustainability and advancement of impact alongside financial outcomes.   More investors are starting to incorporate impact into their exit-related processes, often starting at pre-investment stages which provide a foundation for responsible exits across asset classes. Emerging and nascent practices illustrate a move toward more specific and formalized approaches, such as the use of detailed exit review checklists, codified exit policies or frameworks, buyer alignment assessments, legal agreements, and exit committee reviews.      
 
 

Common Practices
 

  • Considering sustained impact during exit process. 66% disclosed specific ways in which they consider the effect that the timing, structure, or process of the exit will have on the sustainability of impact. 
     

  • Considering sustained impact at exit during pre-investment52% disclosed planning for and safeguarding sustained impact at exit during the pre-investment phase through their origination, screening, assessment, and structuring of the deals. 

 

Emerging Practices
 

  • Assessment during screening and due diligence36% disclosed considering the potential for sustainability of impact at exit during screening and due diligence processes. These may include explicit screening and due diligence criteria and exit-related content in the investment memo, including analysis of exit scenarios, risks and strategies. Related to this, selecting impact-inherent investments, including in products or founders, is also mentioned as a way to safeguard sustained impact beyond exit, outlasting the Signatories’ ownership.
     

  • Exit review checklist or memo. 27% disclosed having an exit review checklist or memorandum prepared, outlining the process followed prior to exit, including timing, structure, and selection of buyer. 
     

Nascent Practices
 

  • Buyer assessment and engagement. 20% disclosed assessing or engaging with the potential buyer to ensure and support alignment and buy-in of impact objectives as a key component to safeguarding the sustainability of impact post transfer of ownership. 
     

  • Exit committee review. 14% disclosed having either a separate exit committee or an existing investment or impact-related committee review sustained impact considerations at exit for approval, including through exit checklist or memo. 
     

  • Legal agreement, covenants or side letter13%, particularly those investing in private debt and loans, disclosed addressing sustaining impact at exit within the origination documents, covenants or side letters.
     

  • Termination or early exit process to address impact drift11% disclosed having a process for an early exit to address instances of impact drift, meaning a company no longer meeting the impact criteria or a company that no longer adheres to agreed upon policies. In such cases, minimizing risks or negative impact becomes the more important concern.   
     

  • Extension, refinancing or follow-on financing10%disclosed having established criteria or procedures for refinancing or follow-on financing to continue to support the investee and sustain or deepen the impact.
     

  • Formal exit policy. 6% disclosed having a formal exit policy or codified framework to guide broad portfolio, fund- or firm-level approaches to exit in a comprehensive and consistent manner. 
     

  • Sales agreement5% disclosed having a sales agreement that includes clauses with requirements that support the sustainability of the exit.
     

  • Post-exit review or follow-up. 5% disclosed conducting reviews of investments or investee post-exit to determine how the impact has been sustained over time. In some cases, this may take the form of a partial exit or having a continued board seat. Related, exit interviews and case studies, shortly after exit, are also used to support continued learning and improvement.   



     

Principle 7 Signatory Practice Spotlights

 

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Asset Class: Private Equity, Private Debt
 

Blue Earth Capital has institutionalized its approach to assess the sustainability of impact during the exit decision making process. Exit planning begins during the due diligence process by targeting companies with strong correlation between financial and impact performances, positioning impact as a key value differentiator. Continuous monitoring of the investment during ownership helps to further mitigate the risks of impact drift.

  • Private equity: The investment team uses a proprietary impact risk framework to assess potential exit options from both an impact and commercial perspective before an exit decision is presented to the Investment Committee. The Exit Risk Assessment examines the potential exit implications along the following dimensions: impact results, materiality, timing, impact orientation, governance, and business model. The new buyer is assessed to ensure their impact alignment. 

  • Private debt: With self-liquidating instruments, the focus is on protecting against impact drift including through impact (social and environmental) covenants with built in penalty or corrective actions for impact underperformance, environmental and social action plans, impact rachets and rights to influence new ownership's impact alignment in case of change of control. 

  • Secondary transaction: Blue Earth Capital is proactively supporting the development of the nascent impact secondary market through acting as a buyer in secondary transactions and facilitating impact-aligned exits for other investors. A fully developed secondaries market will reduce investment risks and attract more investors into the market, leading to increased capital allocations, innovation in financial products, and funding for investee businesses, while maintaining impact integrity.  
     

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Asset Class: Multiple

As a development financial institution with a wide-ranging, global investment portfolio and development impact mandate, BII balances its various exit-related considerations with a codified responsible investing framework designed to have applicability across its multiple asset classes.   

  • “Hold or Sell” analysis is conducted on eligible investments as part of active Portfolio Management based on how likely is it that the asset will continue to deliver the expected impact, and whether achieving any remaining impact is dependent on BII’s presence. 

  • Internal Responsible Exit Guidance informs when and how to exit, balancing impact and commercial considerations to provide a standardized, documented process for considering the effect of exit on the sustainability impact. 
    [See Practice Example 7.1]       

  • During portfolio management and at the point of exit, BII assesses deal timing, exit readiness, exit structuring and buyer-alignment considerations which are documented in a comprehensive Exit Investment Committee Paper. A formal approval process sets out clear rationale for exit, with impact and commercial returns assessed equally.

  • How development impact will be sustained after exit is an important factor that is reviewed as part of the process. BII conducts an in-depth analysis of development impact through an exit review with lessons learned.   

  • BII has also engaged in impact secondary transactions for its emerging market funds to mobilize private capital while providing liquidity for its portfolio.   



    Practice Example 7.1.  BII’s Framework for Considering Exit Decisions Based on Impact and Commercial Considerations
     

BII Framework

 

 

 

 

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Asset Class: Private Debt

As a provider of private debt capital with preset maturity dates, Calvert Impact considers investees’ ability to sustain impact at each origination, including renewal repayment.

  • Origination and renewal: Expected impact is assessed using a proprietary Impact Scorecard, and loan terms such as tenor, maturity date, interest rate, and amortization schedule are structured based on assessment of the borrower’s ability to repay, keeping the effect on sustained impact in mind. Renewals and increased financing at maturity, or financing of subsequent funds support long-term capacity building and expansion of managers demonstrating financial and impact performance. Repayment without renewal is often due to the investee proving the success of their model or track record and gaining access to traditional capital markets.

  • Exit analysis and learning: Calvert Impact analyzes actualized impact at repayment, including an estimate of sustained impact post repayment, with final scoring using the Impact Scorecard. An exit interview with the investee captures lessons learned including understanding of investor contribution and future opportunities for future collaboration, documented in repayment Impact Scorecards and “Impact at Exit” case studies repository.

  • Risk mitigation: Loan modifications and workouts are considered in extraordinary circumstances of challenge for an investee, with case-by-case evaluation to balance between a responsible exit, sustainability of investee’s business model, and relevant fiduciary concerns. 
     

 

 

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Asset Class: Venture Capital


As a venture capital firm based in Japan, mainly investing in the healthcare field to solve social issues, Capital Medica Ventures (CMV) has established policies supporting responsible exits through impact IPOs and M&A and Exit to Community.

  • Supporting Impact IPOs:  CMV provides financial and non-financial support required for impact IPOs in order to accelerate and deepen investees’ impact achievement aligned with their theory of change. These support initiatives may include building internal consensus regarding impact IPOs, creating a business growth story linking social impact with profit growth, documenting impact areas and related public disclosure areas, appealing to institutional investors as an impact company, and continuous support for IMM system post IPO. 

  • M&A (stock transfer) and exit to community:  CMV seek outs and selects appropriate transferees, for example customers or business partners, that have the resources and network to continue and expand the investee company’s impact. These efforts may include sourcing and conducting impact due diligence of acquisition candidates, supporting alignment of interests among existing shareholders, drafting impact-aligned contract terms, building internal consensus regarding stock transfer, and PR and event implementation support for responsible exit implementation.

With policies in place, CMV is working to systematize processes and approaches for implementation with plans to promote further standardization as the number of exits increases.    

  

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Asset Class: Real Estate, Infrastructure
 

As a social infrastructure investor in Europe with an open-ended fund structure, the Franklin Templeton Social Infrastructure strategy holds assets for the long-term with fewer exits. It considers impact persistence as “a sixth dimension of impact”, emphasizing long-term sustainability, and incorporates a structured exit review process to preserve impact beyond ownership. 

  • The impact persistence dimension analyzes length of expected impact and dependency of an impact initiative on its maintaining ownership. 

  • As part of its "Responsible Exit Review" which documents its responsible exit policy and decision-making process, the impact and asset management team answers a set of eight pre-sale and post-sale questions.  [See Practice Example 7.2]

  • The preservation of impact is fully considered in the sales process within the requirements of fiduciary duty to ensure the best financial outcome to investors.  The management team’s belief is that if an asset is highly impactful in its current state, the likelihood of a buyer reflecting that value is increased and the chances of a mission-aligned owner winning the bid is improved.   

  • The investment team is exploring structures with strategic impact-aligned co-investors as another tool to increase the likelihood of a sustained impact at exit.   




    Practice Example 7.2. Franklin Templeton Social Infrastructure’s Responsible Exit Review Questions 
     
Franklin Templeton Responsible Exit Review

 

 

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Asset Class: Private Equity


As a private equity investor focused on providing financial, health and climate solutions across Africa and Asia, LeapFrog Investments has codified its exit review practices into a Responsible Exit Approach. This includes a comprehensive checklist intended to assess how systematically LeapFrog and the portfolio company have embedded impact and ESG value creation as part of portfolio management, including across the company’s operations and governance processes so that impact and ESG are part of a company’s core practices.   

  • The Responsible Exit Approach considers financial and social factors in the decision to exit. It assesses achievement of impact against expectations and seeks long-term sustainable impact post-exit by focusing on the core alignment of the buyer with the investee’s impact thesis.

  • The comprehensive Responsible Exit Checklist covers considerations related to the exit process, the portfolio company’s exit readiness, and buyer selection.  

The formalized approach supports consistent evaluation and documentation of impact considerations at exit and is part of an Exit Note to the investment committee. 

 

 

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Asset Class: Venture Capital
 

As a VC in emerging markets, Omnivore’s exit policy considers three key principles: exit timing, exit approach, and impact continuity. [See Practice Example 7.3] 

  • Exit timing: Considering exit strategy early during underwriting with analysis of future exit options including strategic buyer, secondary transaction or IPO with 5-7 year target timing. 

  • Exit approach: Assessing potential buyer, their impact alignment, and track record while optimizing for financial and social returns. 

  • Impact continuity: During ownership, mandating impact and ESG governance policies, baking impact intentionality into company culture, and strengthening their systems and capacities so that impact is central and likely to be sustained post exit.   

These exit considerations are formalized in Omnivore’s Responsible Exit Guidance note guiding actions prior to and during any proposed exits.   


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             Practice Example 7.3. Omnivore’s Approach to Responsible Exits 

Omnivore Exit Policy

 


V1.0 initial draft published on January 27, 2025

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