Social Impact Investing

"Impact investments can be made in emerging and developed markets, and target a
range of returns from below-market to above-market rates, depending upon the
circumstances." Impact investing tends to have roots in either social issues or
environmental issues, and has been contrasted with microfinance. Impact investors
actively seek to place capital in businesses, nonprofits, and funds that can harness the
positive power of enterprise. Impact investing occurs across asset classes; for example,
private equity/venture capital, debt, and fixed income.
Background
Historically, regulation—and to a lesser extent, philanthropy—was an attempt to
minimize the negative social consequences (unintended consequences, externalities) of
business activities.[needs reference] However, a history of individual investors using
socially responsible investing to express their values exists, and such investing behavior
is usually defined by the avoidance of investments in specific companies or activities
with negative effects. In the 1990s, Jed Emerson advocated the blended value
approach; that is, for foundations' endowments to be invested in alignment with the
mission of the foundation, rather than to maximize financial return, which had been the
prior accepted strategy.
Simultaneously, approaches such as pollution prevention, corporate social
responsibility, and triple bottom line began as measurements of non-financial effects,
both inside and outside of corporations. In 2000, Baruch Lev, of the NYU Stern School
of Business, collated thinking about intangible assets in a book of the same name,
which furthered thinking about the non-financial effects of corporate production.
Finally, around 2007, the term "impact investment" emerged — an approach that
deliberately builds intangible assets alongside tangible, financial ones. A commitment to
measuring social and environmental performance, with the same rigor as that applied to
financial performance, is considered a critical, even indispensable, component of impact
investing.
The Industry
The number of funds engaged in impact investing grew quickly over a five-year period
and a 2009 report from research firm the Monitor Group estimated that the impact
investing industry could grow from around US$50 billion in assets to US$500 billion in
assets within the subsequent decade. Such capital may be in a range of forms,
including equity, debt, working capital lines of credit, and loan guarantees. Examples in
recent decades include many investments in microfinance, community development
finance, and clean technology. The growth of impact investing is partly attributed to the
criticism of traditional forms of philanthropy and international development, which have
been characterized as unsustainable and driven by the goals—or whims—of the
corresponding donors.
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