Impact Investing

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All investing is impact investing. All enterprises, regardless of tax status, produce both social and financial results on a spectrum from positive to negative, including neutral. The financial and social performance of enterprises is measureable and varies over time. The conscientious investor takes note of the blended value of their holdings so that they can substitute more positive combined positions for negative or neutral ones.

Last Updated: September 12, 2015

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Carlos Eyzaguirre Sep 5, 2015 Reply

The GIIN definition linked above says: "Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return."

This illustrates an important point: many impact investors believe that the intention to create impact is essential (as opposed to impact that happens without particular intentionality). Some further attempt to prove that the addition of their investment dollars were catalytic to the positive impact created by the enterprise ("additionality").

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Deirdre Hess Sep 5, 2015 Reply

To add to Carlos's point, the explanations of impact investing given by Jed Emerson and Antony Bugg-Levine in their book (linked above) give insight into the complexities and history of the term:

"[U]nfortunately, many people... are still locked in old language and mind-sets. They are used to orienting themselves around financial return and therefore define impact investments as below-market-rate investments that trade off financial return for social impact. Although these investments certainly form part of the impact-investing universe, the heart of the movement is the reorientation around blended value as the organizing principle of our work. ... For now, the industry is coalescing around a definition that focuses on intention and the attention an investor pays to blended value returns: impact investors intend to create positive impact alongside various levels of financial return, both managing and measuring the blended value they create."

In addition to the intentionality and additionality questions, it's common to make assumptions around the relationship between financial return characteristics and social performance, but these are complex variables. An enterprise that has positive social impact baked into its core operations will have greater positive impact as it has greater financial success. Another enterprise may find financial gains in "externalizing" costs--but in doing so may cannibalize the resilience of the communities where it operates, including its own employee and customer bases. Or it may run risks that eventually cause financial loss (see: BP oil spill).

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Debbie Campbell Feb 18, 2016 Reply

In Clara Miller's essay "Building a Foundation for the 21st Century," she articulates a practical, yet bold approach that brings together the resources of philanthropy and the capital markets. If Miller's approach achieves traction it will be catalytic. It makes sense for "philanthropy to use all of its resources to actively engage with the capital markets for public good," as Miller describes. It certainly has the potential to unleash collaborative capital solutions and address the challenges associated with improving outcomes for people and the communities where they live in a way that will support lasting economic improvement. The data is out there in most instances. Imagine the possibilities if the resources are aligned to compliment one another.

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