Impact Fund Denmark (former IFU) is the Danish development finance institution (DFI). With a mission to be a best-in-class impact investor, Impact Fund Denmark seeks to deploy its capital to mobilise other investors and contribute to market creation where private investors are reluctant to go. Impact Fund Denmark has developed a new framework for assessing and documenting additionality with assistance from University of Copenhagen’s Department of Economics.
Impact Fund Denmark's additionality assessment framework
Abstract
Assessing and measuring additionality is one of the most difficult and contested aspects of blended finance – despite being absolutely essential. The challenge lies in the fact that additionality is counterfactual by nature; it requires proving that something would have happened without the intervention. This makes it conceptually tricky, methodologically complex and politically sensitive. Using economic theory as a basis for developing additionality assessment frameworks can enable the assessment and maximise the probability of being truly additional.
Impact Fund Denmark (former IFU) is the Danish development finance institution (DFI). With a mission to be a best-in-class impact investor, Impact Fund Denmark seeks to deploy its capital to mobilise other investors and contribute to market creation where private investors are reluctant to go. Impact Fund Denmark seeks risk-adjusted returns to ensure the commercial and impact sustainability of its investments. As the owner of Fund, the Danish government expects that Impact Fund Denmark’s investments do not crowd out private investors but are additional to what the market can be expected to deliver. This principle is enshrined in an Ownership Document that sets Impact Fund Denmark’s strategic direction.
Impact Fund Denmark has developed a new framework for assessing and documenting additionality with assistance from University of Copenhagen’s Department of Economics. The tool is used to assess the likelihood of additionality when investment opportunities are considered, and it is being added to the existing impact and sustainability screening that investment teams of the Fund use to assess and review investment opportunities.
The underlying model is driven by economic theory and delivers rigorous and systematic outputs. The model combines qualitative and quantitative methods for comprehensive analysis. This contributes to formalising and articulating otherwise implicit assumptions behind investment decisions. Using a "constraints tree", the model outlines possible barriers to private investments. The significance of these country-level barriers to private investment is illustrated with indicators from reliable and reputable data sources (the International Monetary Fund, UN Trade and Development, the World Bank). Barriers include costs of finance, considering both domestic and international flows. Low domestic finance may stem from inefficient financial intermediation and/or low savings, while international finance scarcity is often influenced by factors such as a poor legal and regulatory environment, and other drivers of country risk. Poor access to international finance is often a symptom of low expected returns to private investment which, in turn, is linked to market or government failures, i.e. lack of information, lack of supporting infrastructure, and/or low levels of capacity. The assessment model makes it easier to identify any systemic barriers and provides guidance for data selection for ex-ante assessments.
As part of the investment process, Impact Fund Denmark scrutinises the context of each investment opportunity closely. Key questions relate to the availability of capital in sufficient quantity, and on suitable terms. This qualitative part includes assessing whether the Fund’s engagement attracts capital that would not otherwise be available, focusing on deal terms and the mobilisation of third-party investors. Factors like private investor appetite, commercial terms and market conditions may be assessed as barriers and so regarded as drivers of financial additionality of an engagement by the Fund.
The qualitative analysis also considers potential externalities, particularly societal effects, and sectoral impacts. This could include reflections about local market conditions, and whether the Impact Fund Denmark’s engagement can be expected to ignite local demand or secure significant social returns by alleviating various market failures – both downstream and upstream, and in production as well as consumption/access. Examples could include spillover employment in local supply chains; increased access for women and the rural population; catalytic investment behaviour in the sector; the uptake of innovation; or improved environmental, social and governance (ESG) norms.
Deal teams are guided by a set of questions intended to keep narratives stringent and focused. The resulting additionality assessment is then considered binary - either the investment can be categorised as additional or it cannot. The tool does not give degrees of additionality.
A critical aspect of the assessment lies in the deal team's ability to establish and document a credible “narrative” regarding the investment's additionality and support it to the greatest extent possible with data and evidence from credible and reliable sources.
The Impact Fund Denmark case illustrates a robust additionality assessment framework that is rooted in economic theory, uses a combination of quantitative and qualitative techniques, and considers potential externalities, particularly societal effects, and sectoral impacts. Evaluating externalities and societal effects is not just about improving impact; it is about understanding the transformational role of blended finance and ensuring that development finance is truly catalytic. Using economic theory in principle enables benchmarking financing gaps, tracking systemic constraints, and comparing interventions across countries and sectors. Also, establishing a set of comprehensive questions to guide the analysis helps ensure a thorough assessment and maximises the probability of being truly additional.
Impact Fund Denmark’s collaboration with the University of Copenhagen is a good example of how academia and development finance can work together to advance both rigour, credibility and accountability in blended finance – an example to inspire other providers of development finance who seek to defend additionality claims and refine assessment frameworks in an increasingly data-driven world.
This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Member countries of the OECD.
This can include intellectual or funding contributions.
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Note by the Republic of Türkiye
The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”.
Note by all the European Union Member States of the OECD and the European Union
The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.
Kosovo: This designation is without prejudice to positions on status, and is in line with United Nations Security Council Resolution 1244/99 and the Advisory Opinion of the International Court of Justice on Kosovo’s declaration of independence.
Photo credits: © imagedepotpro/gettyimages.
© OECD 2025
Attribution 4.0 International (CC BY 4.0)
This work is made available under the Creative Commons Attribution 4.0 International licence. By using this work, you accept to be bound by the terms of this licence (https://creativecommons.org/licenses/by/4.0/).
Attribution – you must cite the work.
Translations – you must cite the original work, identify changes to the original and add the following text: In the event of any discrepancy between the original work and the translation, only the text of original work should be considered valid.
Adaptations – you must cite the original work and add the following text: This is an adaptation of an original work by the OECD. The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries.
Third-party material – the licence does not apply to third-party material in the work. If using such material, you are responsible for obtaining permission from the third party and for any claims of infringement.
You must not use the OECD logo, visual identity or cover image without express permission or suggest the OECD endorses your use of the work.
Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration (PCA) Arbitration Rules 2012. The seat of arbitration shall be Paris (France). The number of arbitrators shall be one.
