Though the term “impact investing” was first coined in 2007, the activity has existed under various names for many decades. The sector has gained momentum both in developed and developing countries in recent years. Today there are more than 300 impact investment funds. This universe of funds includes those known as socially responsible investing vehicles (SRIs), MIVs, and bottom of the pyramid venture funds. They are run by specialized asset managers (e.g., responsAbility, Triodos, and Bamboo Finance) and mainstream financial institutions (e.g., J.P. Morgan, UBS, and Deutsche Bank). A number of actors also engage in “sector building” activities, including foundations such as Rockefeller, Omidyar Network, and the Bill & Melinda Gates Foundation; networks such as the Global Impact Investing Network (GIIN), Aspen Network of Development Entrepreneurs (ANDE), and European Venture Philanthropy Association (EVPA); and universities such as Duke, Harvard, and Oxford.
What is impact investing?
According to GIIN, “impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.” This definition differs from philanthropy—where no financial returns are expected—and from socially responsible investment—where negative impacts are avoided but positive impacts are not necessarily required.
Impact investors do not distinguish themselves from traditional investors by their funding vehicles, products, or the markets or sectors in which they concentrate, but rather through the motivations behind their investment. Therefore, broadly speaking, impact investors fall into two categories:
• “Impact first” investors who aim to maximize social and environmental impact and are prepared to accept below-market-rate returns
• “Finance first” investors who seek investment vehicles that offer market rate or above returns while secondarily generating social or environmental impact
Compared to the entities financed by MIVs, impact investment goes to a much more diverse group of possible investees.