Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance30Appendix List of mechanisms TABLE 4 Name Description  Advanced market commitments A funding commitment from a donor or government to purchase a specified quantity of a good or service at a pre-agreed price to ensure market stability and incentivize production. Carbon credit A tradeable instrument representing one metric ton of carbon dioxide equivalent, allowing owners to use, sell, or retire credits to fulfil emission reduction obligations or voluntary targets. Conditional cash transfer A financial assistance model where cash payments are provided to individuals or households if they meet predefined conditions, typically associated with education, health, or other social outcomes. Debt swap A financial arrangement in which a creditor (often a country) provides debt relief to a government based on the government’s progress toward s agreed-upon social or environmental goals. Development impact bond A contractual arrangement involving upfront funding from a third party to achieve social or environmental outcomes, with repayment from donor organization contingent on meeting those outcomes. Environmental credits A payment structure that compensates landowners, communities, or project developers for achieving outcomes that quantify specific ecosystem services. Impact-linked carry Impact-linked carry integrates impact targets into the calculation of carried interest. In private equity and venture capital, carried interest (carry) is usually part of the fund management fee structure and represents a share of the profits of the fund that a fund manager receives after certain financial targets (also called hurdles) are met. Impact-linked challenge funds A challenge fund where the funder pays a premium or bonus dependent on the achievement of predefined impact outcomes. Impact-linked compensation A reward mechanism where a fund manager receives a premium for meeting predefined impact targets in an investment portfolio. Impact-linked convertible notes A convertible note where the discount or cap on conversion depends on the achievement of predefined impact outcomes. Impact-linked finance A financial model where monetary rewards are directly tied to achieving positive social outcomes, rewarding the value creator in market-based organizations, with impact that goes beyond baseline expectations. Financial rewards can range from incentive payments to preferential financing terms. Rewards facilitate the enterprise in delivering additional outcomes.