Impact IRR: Leveraging Modern Portfolio Theory to Define Impact Investments

ArXiv ID: 2509.22600 “View on arXiv”

Authors: Daniel Soliman

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.

Keywords: Impact internal rate of return (Impact IRR), Modern portfolio theory, Impact investing, Financial returns, Impact Investing

Complexity vs Empirical Score

• Math Complexity: 6.0/10
• Empirical Rigor: 2.0/10
• Quadrant: Lab Rats
• Why: The paper applies modern portfolio theory and adapts financial tools like IRR to a novel domain, involving some mathematical modeling, but the empirical focus is on conceptual frameworks and illustrative use cases rather than robust data analysis or backtesting.

  flowchart TD
    A["Research Goal<br>Define Impact Return using<br>Modern Portfolio Theory"] --> B{"Key Methodology"}
    B --> B1["Impact IRR Framework"]
    B --> B2["Adapted Financial Tools"]
    B --> B3["Existing Impact Datasets"]
    
    B1 & B2 & B3 --> C["Computational Process<br>Calculate Impact IRR"]
    C --> D["Key Findings & Outcomes"]
    
    subgraph D [" "]
        D1["Impact IRR is a viable metric<br>for impact investments"]
        D2["Enables optimization of impact<br>alongside financial returns"]
        D3["Provides standardization for<br>evaluating impact performance"]
    end