How to align real impact ambition, LP requirements and portfolio realities?

The three forces pulling fund managers in different directions 

At the heart of impact investing sits a tension that every fund manager knows well. You are expected to:

1. ‍Prove real impact
2. Satisfy LP reporting demands
3. Protect investees from unrealistic data burdens.

‍These three forces often conflict, creating a trilemma that makes reporting feel harder every year.

Why fund managers feel stuck

Prove real impact

Impact measurement should reveal real change in people’s lives and environmental systems. This requires understanding complex causal pathways, acknowledging attribution challenges, and recognizing that meaningful change rarely unfolds in a straight line.

It raises essential questions:

• Are we measuring what truly matters to our stakeholders, or what is easiest to quantify?
• Do our indicators capture deeper, systemic shifts or only short-term improvements?
• Are we paying attention to unintended consequences?

Authentic impact often depends on qualitative insights, longitudinal perspectives, and approaches that include beneficiary voices. A smallholder farmer’s resilience, for example, may appear in better food security or stronger community networks, dimensions that standard yield metrics miss.

Satisfy LP reporting demands

Limited Partners must justify capital allocation, demonstrate alignment with global frameworks, and meet evolving sustainability regulations. This often leads to expectations for:

• Standardized, portfolio-wide metrics
• Quantitative evidence behind narratives
• Regular reporting cycles
• Benchmarks and comparisons across investments
• Clear explanations of how capital contributed to outcomes.

Complication arises when LPs use different frameworks such as IRIS+, the IMP dimensions, SDGs, or bespoke theories of change. Fund managers spend significant effort translating between these varying requirements.

Protect investees from unrealistic data burdens

Many investees, social enterprises, SMEs, financial institutions, operate with limited resources. Their focus is often on delivering services, managing cash flow, or growing their business, not building elaborate impact systems.

Typical constraints include:

• Small teams without dedicated IMM expertise
• Basic or fragmented data systems
• Competing operational priorities
• Contextual and cultural barriers to data collection

When measurement becomes an unfunded requirement, it often turns into a compliance exercise rather than a tool for learning. In some cases, it can even pull resources away from delivering real impact.

The cost of staying in this pattern

Across the sector, this trilemma becomes visible in predictable patterns such as:

• Fund managers selecting indicators that are easy to measure rather than those that reflect what matters most to people and the environment.
• A bias toward investees with stronger data systems, regardless of their actual impact potential.
• Investees spending a disproportionate amount of time on reporting, slowing operations and pulling attention away from service delivery.
• Dashboards highlighting success stories while neutral or negative results remain underreported, limiting learning.
• Standardized metrics flattening context, for example treating a job created in a fragile rural area as identical to one created in a stable urban market.

Over time, these patterns weaken confidence in reported impact, making it harder for fund managers to reassure LPs and secure new capital.

The escape plan

Reduce pressure with tiering 

More fund managers are adopting tiered IMM frameworks that align expectations with investee capacity, risk, and strategic importance.
A common structure includes:

• Tier 1: Essential metrics
  A lean set of core indicators tied to the fund’s theory of change, focused on basic outputs and simple outcomes. Suitable for organisations with limited IMM capacity.
  
  
• Tier 2: Enhanced measurement
  Additional outcome indicators, routine stakeholder feedback, and light contribution analysis. Designed for investees where impact is a central value driver.
  
  
• Tier 3: Deep evaluation
  In-depth studies using longitudinal or quasi-experimental approaches for select cases with high learning potential.
  (Edit: Infrequent and due to high expense, only 1-2 during the investment lifecycle)
  

This approach concentrates effort where it adds the most value while avoiding unrealistic demands on smaller or earlier-stage investees.

Cut noise with materiality 

Tiering becomes stronger when paired with materiality assessments. These help determine which outcomes and indicators deserve priority by examining:

• The significance of effects on people and the environment,
• The relevance of impact performance for financial risk or return,
• What stakeholders themselves identify as most important.

Since businesses evolve, materiality must be reviewed regularly. This prevents bloated indicator sets and keeps measurement aligned with actual impact pathways.

Create alignment with LPs and investees through transparency 

Clear communication across LPs, GPs, and investees makes the trilemma far more manageable.

For LPs, this means describing where evidence is robust, where it depends on assumptions, and how theories of change shape interpretation. For investees, it involves proportionate expectations, clarity on data needs, and sharing insights or benchmarks that add value to their operations.

Open discussion of uncertainties and trade-offs strengthens trust and supports more realistic, collaborative measurement practices.

Use technology to reduce noise and increase trust

Technology plays an important role when portfolios are large and dispersed. Well-designed digital tools can integrate data flows, reduce manual work, support validation, and make insights easier to access.

The role of the leonardo impact management platform 

Managing the impact measurement trilemma requires more than frameworks and good intentions. It needs infrastructure that supports credibility, reduces friction, and keeps stakeholders connected. At leonardo, we are building an IMP that strengthens the foundation of impact data and turns IMM into a manageable, insight-driven process.

Introducing leonardo IMP for capital provider

Reliable, validated impact data

The platform establishes a consistent, trusted base for impact and ESG information through:

• Unified data capture across portfolio companies and stakeholder groups
  
• AI-powered validation, which automatically detects inconsistencies and verifies reported impact
  
• Audit-ready, benchmarkable datasets that LPs can rely on with confidence

Importantly, leonardo also captures primary data directly from people who are impacted, ensuring that stakeholder voices contribute to outcome assessments rather than being inferred through proxy indicators.

Streamlined data flows across LPs, GPs, and investees

LPs, GPs, and portfolio companies operate within one coordinated workflow. This structure enables:

• Credible outcome-based reporting
• Smoother data exchange
• Reduced operational and reputational risk
• Faster, clearer decision-making for investment teams

Complex reporting chains are replaced by organised, traceable data flows that reflect real portfolio relationships.

A Clear, End-to-End IMM Process

The platform supports the entire impact management cycle, helping teams streamline their work:

1. Framework customization
   Set up indicator sets, reporting frameworks, and IMM logic based on fund strategy.
   
   
2. Data collection
   Gather information from portfolio companies and stakeholder groups in a single system.
   
   
3. Validation & verification
   Automated checks highlight gaps or implausible entries early, reducing end-of-cycle pressure.
   
   
4. Analysis & reporting
   Generate insights and reports aligned with LP expectations and global standards.

This creates a transparent, predictable process that reduces burden while improving data quality.

Platform Scope and Capabilities

The platform is designed for the realities of investment portfolios, offering:

• Portfolio logic for shared data management between investors and portfolio companies
• Review cycles with smart suggestions to guide reviewers to the most relevant entries
  Analytics dashboard with advanced filtering for deeper analysis
• Multi-framework logic to support IRIS+, SDGs, ESG regimes, or custom theories of change
• Management tools including task assignments, access control, scheduling, and notifications
• Indicator library with more than 1,000 standardized ESG and impact indicators
  ‍

Together, these features help create an impact management environment where information flows cleanly, evidence is more credible, and measurement friction is significantly reduced.

Toward a More Stable Impact Practice

The trilemma, balancing authentic impact, LP expectations, and investee realities, will remain a defining feature of impact investing. But it can be navigated with greater intention. Tiered measurement frameworks, materiality-driven focus, and transparent expectation management all point the way toward a more balanced practice. Technology provides the infrastructure to make these approaches workable across entire portfolios.

At leonardo impact, we work with investors, DFIs, and foundations that want to move toward a more credible, practical, and stakeholder-centered reality in IMM, built on trust, clarity, and real-world usability.

Take the Next Step 

If you want to reduce reporting friction, build more credible impact data, and give your investees a more realistic measurement process, we’d be happy to show you how our platform works.