In seeking to support economic activity and employment as well as generating commercial return, the Fund has what is described as a “double bottom line” requirement, necessitating that all of the Fund’s investments generate both investment returns and a positive economic impact in Ireland. Achievement of economic impact is as important as delivering commercial return.
In order to achieve a positive economic impact over time, the Fund uses three key economic concepts to assess how an investment or project will positively affect economic activity:
Additionality refers to the additional economic benefits to Gross Value Added (GVA)/Gross Domestic Product (GDP) which are likely to arise as a result of the investment under consideration, over and above what would have taken place anyway.
Displacement refers to instances whereby the additionality created from an investment is reduced or made smaller at the overall economy level due a reduction in such benefits elsewhere in the economy.
Deadweight refers to instances whereby the economic benefits created from an investment would have been achieved in any event in the absence of intervention.
Investment opportunities which lead to economic additionality and have low levels of displacement and deadweight are likely to result in a high economic impact at the overall economy level over the long-term.
Economic additionality can come in many forms, including increased:
The supply of enabling infrastructure also creates additionality in the future, by facilitating future competitiveness of the economy. Similarly innovation and investment in research and development (R&D) have long-term additionality that may not be immediately evident but are necessary for long-term sustainable economic growth.
All metrics mentioned above influence the overall level of economic activity in an economy. A further consideration for us will be the length of time the additional benefits created by an investment are likely to last. Sustainable, long-term additionality will have a more prolonged effect on economic activity and will result in a greater impact than once off, short-term gains.
We target areas for investment which have higher potential economic and employment impact, these will form the majority – approximately 80% – of the ISIF portfolio over time. Some of the sectors with the lowest levels of deadweight and displacement and highest levels of additionality would be those involved in exports, manufacturing, and internationally-traded services.
In parallel we publish economic data semi-annually that, over time, will help develop robust relationships between investment amounts and economic impacts.