What is Impact Investing?

Impact investments aim to solve social or environmental challenges while generating financial profit. Impact investing includes investments that range from producing a return of principal capital (capital preservation) to offering market-rate or even market-beating financial returns. Although impact investing could be categorized as a type of "socially responsible investing," it contrasts with negative screening, which focuses primarily on avoiding investments in "bad" or "harmful" companies - impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise. — The Global Impact Investing Network

A chorus of prominent voices is calling for business to play a proactive role in addressing social and environmental challenges at scale: Bill Gates calls for 'creative capitalism', Tom Friedman calls for a 'green economy', Al Gore and David Blood call for the 'sustainable corporation', and Muhammad Yunus calls for 'social business'.

The sustainable capitalism called for by these thought leaders already exists in a fragmented form today. However, a fragmented market is not capable of growing the number and scale of companies, nor can it attract significant institutional capital. This requires defining an "impact investing" asset class and accelerating the emergence of new capital markets that support appropriate investment vehicles.

Since the 1980s the concept of socially responsible investing has taken off exponentially. SRI assets in the US rose more than 324% from $639 billion in 1995 to $2.71 trillion in 2007. The vast majority of these assets are invested in negatively screened public equities funds, allocation of capital toward companies in a given industry that have lower ESG risk, or the use of shareholder activism.

Investors are increasingly seeking impact investing opportunities or investments that generate a financial return while solving social and environmental problems. The Monitor Institute's recent report on "Investing for Social & Environmental Impact" estimates that Impact Investing has the potential to grow to about 1% of total managed assets, which would result in about $500 B of capital channeled toward social and environmental impact.