Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis

CHAPTER 1

Introduction to Impact Investing

It is an extremely tempting proposition: Invest money in a business whose product or service offers financial return and at the same time generates positive social impact. All parties seem to win, with an investor making a return and society benefiting. A charity could direct money into an organization that accomplishes the same social mission as one it grants to, but instead is able to receive back and reinvest the granted funds. What could hinder such a paradigm?

This idealistic form of capitalism has surged in the last few years. As of 2014, over USD12.7 billion has been committed to impact investing, representing a growth of 19 percent from the prior year.¹ Numerous investors are active ranging from lone high net worth individuals to a multitude of private equity funds. Even larger-scale financial institutions and investment firms have dedicated funds and resources to impact investing. Ancillary services have emerged to support these investors and further develop the industry including secondary market platforms, capital advisers who specialize in impact investments, and services to validate and rate social performance.

With such fervor, why does it still seem like the impact investing market is constrained? The simple answer is that it is not easy to both create a profitable business that has a significant social impact and also scale that business so that it generates commercial returns for investors and continues to progress its ...