Impact Investing is Becoming Mainstream, Here’s Why

This post shares key historical events and resources to help you understand Impact Investing, the key players in it, and great places for news and more resources

Why did Impact Investing start?

It’s going to take far more money than all the philanthropies and governments have at their disposal to make a significant impact on improving the lives of all the poor and vulnerable people in the world. –Rockefeller Foundation

For this reason, and many more, impact investing is a growing movement creating financial, environmental, and social returns… BIG ones.

Impact investments are investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances. –Wikipedia

The World Economic Forum, after its latest meeting in Davos, released a great video (below) highlighting the growth and benefits of the impact investment movement. This is just months after its latest printed report “From the Margins to Mainstream” highlighting positive growth and impact.

Major organizations are improving Impact Investing

In 1980, Ashoka was founded to help innovate an economic system that would make the world a better place.

Ashoka – and its fellows – has raised more than $400 million for social investment, and directly impacted over 20 million people… they transform industries and create new markets. They are the pioneers of the emerging impact investing industry.

In 2001, Acumen Fund, a nonprofit, released a new investment model using investment capital to fight poverty. Since then, it’s impacted over 100 million people.

Patient Capital that dares to go where markets have failed and aid has fallen short. – Acumen Fund

In 2008, a new nonprofit was formed by 40 investors to help measure Impact Investing. It is called the Global Impact Investing Network. It has since gone on to release IRIS (Impact Reporting and Investment Standards), ImpactBase (a database of investment vehicles), and Investors’ Council (leadership group for large-scale impact investors).

…it will change the future. I feel the same way about this network as I do about climate change, if we can make this economically viable it will change everything. This is of enormous significance and I really like it. – Bill Clinton

Also in 2008, the Social Capital Markets (SOCAP) annual conference was initiated. It is the world’s most successful social enterprise and impact investing event, and has convened more than 5,000 people since it began in 2008.

A conference bringing together “entrepreneurs who want to change the world and the capital that wants to make it happen.”

In 2009, the Aspen Institute funded the Aspen Network of Developmental Entrepreneurs, which releases an annual Impact Report. We wrote about its last impact investing report, here.

The most important thing that most poor people can have is a job. ANDE is focussed on entrepreneurs that can create jobs.

Later in 2009, B Labs (the nonprofit behind B Corporation) released GIIRS – the Global Impact Investing Rating System – to help qualify and quantify an organization’s impact.

Arguably the biggest obstacle to the creation of social capital markets is the lack of a common measure of how much good has been done… The Global Impact Investing Rating System (GIIRS) is … a much-needed attempt to develop common definitions of the main terms used in social capital markets. – Matthew Bishop, the Economist

In 2013, the G8 held a Social Impact Investment Forum, endorsed by the UK Prime Minister.

[Impact Investing will] tackle the most difficult social problems…problems that have frustrated government after government, country after country, generation after generation. – David Cameron

Last year, the Omidyar Network funded a research initiative between CASE at Duke University, ImpactAssets, and InSight to create a report “Impact Investing 2.0 – The Way Forward: Insight from 12 Outstanding Funds”

The goal was simple: supplant the guesswork and conjecture in Impact Investing with solid evidence of high performance and, in the process, expose the concrete practices of outstanding funds for use as the foundation for a more sophisticated and successful market.

Recently, Huffington Post published a great article highlighting key impact players and initiatives: “Opening the Curtain on the New 2.0 Era of Impact Investing“. Huffington Post also repeatedly reports on the topic with its own news section dedicated to this keyword.

…[Impact Investing] funds represent a rich and diverse cross-section of Impact Investing and prove that concurrently delivering significant social impacts and financial returns that meet investor expectations is not only possible, but is being done at significant scale

The growth of Impact Investing

According to statistics released by Google, Impact Investing has overtaken angel investing when it comes to search volume, as shown by this trends chart.

Silicon Valley is also investing in Impact Investing

• Stanford Social Innovation Review (SSIR) continue to write great articles on this topic, including “Unpacking the Impact of Impact Investing“
• HUB Ventures (now Better VC) is an accelerator of social enterprises and backs those building a better world
• TONIIC is an international network of action-oriented impact investors.
• Echoing Green uses capital to help people unless talent to help solve the world’s biggest challenges
• Halloran Philanthropies supports social entrepreneurs around the world who advance business solutions and unleash the power of social innovation to alleviate poverty.
• Impact Assets provides a platform to invest in meaning.
• The Lean Startup movement is also supporting the social impact movement at a place called Lean Impact.
• And  MANY more are all working to mobilize the ecosystem.

(Outside of Silicon Valley, Investors’ Circle is the world’s largest impact investing network and Social Venture Partners funds impactful ventures around the world).

The Impact Investing industry is not without its challenges

As the industry grows, thought leaders are highlighting key issues that need to be addressed for Impact Investing to achieve its intent

1. In order to make Impact Investing effective, we first need the right talent, as reported in How We Made it in Africa. The World Economic Forum and ANDE have also written on the same topic as we wrote about in previous posts.
2. There is a “Pioneer Gap” where very early-stage social entrepreneurs do not yet have access to impact investors.
3. Many Impact Investors report on a lack of quality deal flow, and Agora Partnerships recently published a report on this topic
4. Many solutions that help the poor and unhealthy will not generate revenue, and philanthropy is needed to help bridge the gap.

Challenges aside, the entire field has massive potential to fulfill its mission: generate returns while building a better world.

The future of Impact Investing

Sachi Shenoy of Upaya Social Ventures authored a great article on NextBillion about the future of Impact Investing

Impact Investing is at an interesting crossroads. As Omidyar Network’s Matt Bannick and Paula Goldman articulated perfectly: “It is as if impact investors are lined up around the proverbial water pump waiting for the flood of deals, while no one is actually priming the pump!” If the goal is to encourage entrepreneurship and build a rich pipeline of novel solutions to age-old social problems, we must find creative strategies like the Pioneer Capital approach to give startups a better runway.

The reports mentioned above provide tangible and quantifiable evidence that the industry is benefitting investors, social entrepreneurs, and millions of people around the world.

How do you feel about Impact Investing?