UP FOR DEBATE: Impact Investing

When Can Impact Investing Create Real Impact?

Although it is possible for impact investors to achieve social impact along with market rate returns, it's not easy to do and doesn't happen nearly as often as many boosters would have you believe.


Audrey Choi
Managing Director, Head of Global Sustainable Finance Morgan Stanley

It's important to build broad and inclusive on-ramps for investors of all kinds.

Sterling K. Speirn
President and CEO W.K. Kellogg Foundation

Mission-driven investments can help philanthropists become more effective grantmakers.

Nancy E. Pfund
Founder, Managing Director DBL Investors

Impact investors can help shape the culture of young companies.

Nick O'Donohoe
CEO Big Society Capital

Impact investors go places, meet people, and find opportunities that other investors miss.

Amit Bouri
Cofounder and Managing Director Global Impact Investing Network

Proving that every impact investment goes beyond what mainstream investors bring is unrealistic.

Antony Bugg-Levine
CEO Nonprofit Finance Fund

To achieve social impact, investors and entrepreneurs must broaden beyond the enterprise.

Sasha Dichter
Chief Innovation Officer Acumen

To avoid creating a Potemkin village, impact investors must collect better social impact data.

John Goldstein
Cofounder and Managing Director Imprint Capital

Though it may ruffle some feathers, it’s time to begin parsing the big tent of impact investing.

Beth Richardson
Director of B Analytics and GIIRS B Lab

IRIS and GIIRS/B Analytics are an important first step in providing standardized social metrics.

Harold Rosen
CEO Grassroots Business Fund

Investors can create impact by providing advisory services to social businesses.

Brian Trelstad
Partner Bridges Ventures

Investors can have social impact by investing in underserved geographic areas.

David Wood
Director of the Initiative for Responsible Investment Hauser Institute for Civil Society at Harvard University

Contrary to what Brest and Born say, impact investors can have an impact on public equity markets.

Mike McCreless
Director of Strategy and Impact Root Capital
Catherine Gill
Vice President of Investor Relations Root Capital

Impact investors play a critical role even after mainstream capital enters the picture.

Alvaro Rodriguez Arregui
Managing Partner IGNIA
Michael Chu
Managing Director, Senior Lecturer IGNIA, Harvard Business School

Impact investors should not be burdened with proving social impact.

Matt Bannick
Managing Partner Omidyar Network
Paula Goldman
Director of Knowledge and Advocacy Omidyar Network

Impact investors can help spur the development of an entirely new sector.

Kelly Born
Fellow William and Flora Hewlett Foundation
Paul Brest
Emeritus Professor, Lecturer, and Faculty Co-Director Stanford Law School, Graduate School of Business, and Stanford Center on Philanthropy and Civil Society

Last Word: Paul Brest and Kelly Born respond to the 18 people who commented on their article.

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  • BY Tracy Barba

    ON August 16, 2013 08:28 AM

    You may want to broaden your definition and understanding of impact investing and include pioneering firms like Bamboo Finance and many many others who are achieving commercial returns and impact.

  • Paul Brest's avatar

    BY Paul Brest, Stanford Law School

    ON August 17, 2013 09:44 AM

    Hi Tracy,
    Thanks for your comment. We certainly don’t mean to exclude firms like Bamboo. As we write: “investors are especially likely to have investment impact in conditions of imperfect information—for example, in social or environmental niche markets where impact investment fund managers or other intermediaries have special expertise or intelligence on the ground.”

  • BY Kevin Jones

    ON August 17, 2013 02:17 PM

    I don’t believe impact investors fall into two categories, and focusing on the divergence denies the broad spectrum as well as the fact that capital is a tool; sometimes you want market rate and high impact, which exists at some places and some times, like right now with ObamaCare meets mHealth augmented by cultural literacy. Achieving market rate returns is a social good because we need to flood the early days of adopting ObamaCare with innovation and capital to enshrine this great law into our payment systems, care systems, etc.  And sometimes, like with Fair Trade, you are concessionary because to be otherwise would be to extractive. A binary focus is applying 19th century science to a quantum world where a binary approach causes you to mis perceive both risk and opportunity. It’s a set of outmoded narrow spectacles that will cause any investor using it to underperform and not create all the blended value she would have otherwise. It is a bad way to think about things.

  • BY Cynder Sinclair

    ON August 19, 2013 10:14 AM

    “When can impact investing create real impact”
    Thanks for the excellent article on impact investing. Perhaps impact investing might be a good approach for working with organizations that offer duplicate services. If they work together on a project that will move the larger social needle we can turn the negative implication of duplicate services into a positive.

  • Paul Brest's avatar

    BY Paul Brest, Stanford Law School

    ON August 19, 2013 03:48 PM

    Hi Kevin:

    Impact investors can invest on a spectrum ranging from risk-adjusted market returns at one end to highly concessionary investments at the other. As you suggest, any individual investor may take a range of return positions depending on the investment in question.

    Here’s why we distinguish between concessionary and non-concessionary investments.  Having investment impact means capitalizing an enterprise beyond what would happen otherwise. It’s pretty obvious how concessionary investments can have investment impact, because concessionary investors are willing to engage in some degree of philanthropy by taking higher risks or accepting lower returns than the commercial market would.

    The critical question is: if an enterprise offers risk-adjusted market rate returns, why aren’t more ordinary, non-concessionary commercial investors funding it?  Understanding the barriers to their doing so may hold the key to scaling up socially valuable enterprises. But you can’t even ask the question without making the distinction between concessionary and non-concessionary investments. 

    Actually, you make this distinction yourself, saying that sometimes one should make market-return investments (in ObamaCare-related enterprises) and sometimes concessionary (in Fair Trade). We vehemently agree!

    Paul and Kelly

  • BY Kevin Jones

    ON August 23, 2013 02:51 PM

    What I disagree with is typing the investors as concessionary or non concessionary; it depends on what their goals are; sometimes the impact investor should be pursuing market rate returns; the changes around ObamaCare mixed with mHealth mean this is an opportunity where broad adoption, at high speed achieves the highest impact goal. That is not the case with fair trade but the investor can be the same. pursuing a blended value, shared value strategy.

    Many people do not realize the huge opportunity to make more money helping poor people (people from 138% of the poverty line down to people at 100% of the poverty line) stay out of the emergency room during this short window.  Another reason is academics telling them they are EITHER concessionary or market rate. It’s the identify of the investor in the binary bucket that is perhaps the biggest misconception fostered by the researchers right now.

  • BY Kevin Jones

    ON August 23, 2013 02:53 PM

    I can have a portfolio of impact methods; market rate, concessionary, subsidy that goes away, grants, etc. just like i have of fixed income or venture or public equities; tools for goals. I am not a fixed income investor; i do some fixed income investing.

  • Kelly Born, Hewlett Foundation's avatar

    BY Kelly Born, Hewlett Foundation

    ON August 25, 2013 01:11 PM

    Thanks for your comments Kevin.  We agree that any individual investor, like yourself, can have a mixed portfolio of concessionary and non-concessionary investments (and that in fact the latter may help to subsidize the former). The distinction we are hoping to make is at the level of the individual investment, not the investor. We do not seek to “identify…the investor in … binary bucket[s]”, as you suggest. Instead you will see that, for example, our sections are entitled “Concessionary Investments”, not “Concessionary Investors”.  Hopefully this helps clarify a concern I think you rightly raise.

  • BY Tom Hyland

    ON August 29, 2013 09:22 AM

    “Although it is possible for impact investors to achieve social impact along with market rate returns, it’s not easy to do and doesn’t happen nearly as often as many boosters would have you believe.”

    I take exception. If you haven’t found examples of firms providing market (or even better than mainstream commercial) returns while still having outsized impact on livelihoods, job creation, or access to essential basic services then you either haven’t look hard enough and are speaking to the same old usual suspects in this sector or are operating with a definition of impact not grounded in the reality of how someone’s life in an emerging or frontier market is actually improved.

  • Fabian Huwyler's avatar

    BY Fabian Huwyler

    ON August 30, 2013 01:21 AM

    Thank you, Paul and Kelly.

    We probably all agree that in order to reach scale, the impact investing sector needs to be more attractive to the large majority of non-concessionary investors. But isn’t there an inherent conflict between this objective and the conclusion that investment impact is primarily realized in conditions of imperfect information (i.e., fewer market participants, smaller deals, etc.)?

    We are about to launch a research project, which among other things aims to analyze the “investment impact” of financial products focused on conservation. Are you aware of any standardized metrics for the impact of financial products (IRIS and GIIRS rather focus on measuring the impact of projects)?

  • BY David Wolf

    ON August 31, 2013 11:23 AM

    Intriguing and well-written article Kelly & Paul, thank you.

    However, the article’s outright rejection of public market equities as lacking any impact potentiality seems harsh if not specious.  The authors ignore or dismiss the potential of shareholder activism, among other things.  If “a particular investment has impact only if it increases the quantity or quality of the enterprise’s social outcomes beyond what would otherwise have occurred,” wouldn’t an investment followed by shareholder pressure that, for example, successfully results in enhancing workforce diversity clear that definitional bar?  Going further, what if investor demand for a more “enlightened” public company enabled it to best its “non-enlightened” competitors due to a lower cost of capital?  What if a public company’s “enlightened” approach was actually its competitive advantage?

    Granted, the level of shareholder engagement described in the first example is, unfortunately, not the norm—and it requires a two step process: 1) Investment; followed by, 2) Engagement/Exerting Influence, but it is still as much of a possibility as the other impact investment vectors described.  The second example could potentially be categorized as a concessionary investment (if more investor demand lowered potential investor returns), but not necessarily. There are publicly traded companies that prove this out over time, although their histories are still (relatively) short and the roster is small (but growing).  Still, it’s an emerging dynamic that shouldn’t be dismissed .

    Public companies may not be fashionable in impact circles and are often a convenient punching bag, but their global reach and the magnitude of their influence is undeniable—they could be an incredible lever for positive change.

    Lastly, if public companies can’t be impact, then what happens if/when some of the private companies funded by Equilibrium or Elevar go public? Thoughts?

    Thanks again for an engaging piece.

  • BY Alcanne Houtzaager

    ON September 1, 2013 09:48 AM

    I like this thought piece very much. And this maybe incredibly naive, but what’s the difference between investing in impact investing and investing in so called ‘stars’ or ‘question marks’ as described by the Boston Consulting Group? Both are subsidized and both are innovative. Just the intentions are different. Both will -if successful- create turnover, profit, jobs, income, etc. etc. etc. When enterprise and operational practice are sustainable, there really is no difference is there?

  • Paul Brest's avatar

    BY Paul Brest, Stanford Law School

    ON September 3, 2013 10:26 PM

    Hello Fabian and David, and thanks for your very thoughtful comments.

    With respect to Fabian’s comment and David’s last paragraph, we think of impact investing as a stage of a developmental process. Most fund managers, who attract only a subset of investors with particular social or environmental interests, would like nothing better than to solve the problem of limited information and appeal to ordinary market investors. If and when they succeed, impact investing has played its (very constructive) role in opening the markets to investors at large. That’s just what David Chen at Equilibrium Capital is trying to do. (And, Fabian, I would direct your question about financial products in conservation to David Chen, who is a pioneer in this field.)

    On David Wolf’s major point, we were focusing on the operation of markets, pure and simple, and did not address the potential for shareholder activism to change corporate behavior. (You’ve given us an idea for the sequel.)

    Paul and Kelly

  • Kelly Born, Hewlett Foundation's avatar

    BY Kelly Born, Hewlett Foundation

    ON September 5, 2013 03:25 PM

    Thanks Alcanne. First, for those less familiar with the BCG Matrix, it’s worth noting that it has only two dimensions: market share and growth rate.  Social impact is not a feature.  But as you suggest one could assume a scenario in which all enterprises have net positive operational impact. In this case high growth rate, high market share enterprises (‘stars’) typically don’t require concessionary investments at that stage (they are not subsidized) – by the time they have high market share they are well established on capital markets and are generally fully capitalized by non-concessionary investors seeking market returns. In high growth rate areas I imagine concessionary investors would have to actually elbow non-concessionary investors out of the way in order to invest (and of course this would likely be in publicly traded companies, where we argue that investment impact is a virtual impossibility). 

    ‘Question marks’ (those with less market share) may or may not be well known to public investors. The question for us would be where can concessionary funds be invested with the most investment and social impact, and this in turn raises the question of whether there is imperfect information, as we discuss in the article, which may be preventing non-concessionary investors from taking advantage of a good opportunity. It of course also raises the question of the degree of social impact of the enterprise in question. 

    As you suggest, almost anything that creates jobs could claim operational impact. For operational impact, as with returns, the options are not binary but instead fall upon a spectrum from enterprises with zero (or indeed negative) operational impact, to those with significant positive impact.

    In our longer article we include two sections of possible relevance. First, we note some non-concessionary investments that we are skeptical of given their dubious social or environmental impact. Second, in a section entitled The Inherent Subjectivity of Goals, we look at the various and at time competing social goals investors may hold. While even centuries of philosophy don’t yield a clear answer, one could argue that some goals may be “worthier” than others.  For example some might believe that, all else being equal, building an enterprise aimed at job creation in a community with a 30% unemployment rate and 80% of the population living below the poverty line may have more intrinsic operational impact than creating an enterprise in Silicon Valley. So even if you had a ‘question mark’ with positive operational impact, there is a question of degree and kind. 

    In short, I see these as two very different frameworks. But if one were to assume that all enterprises have positive operational impact, the questions of overlap between the BCG Matrix and our framework would suggest examining a) which enterprises are likely to have the most significant, positive operational impact and b) where might there be room for additionality (where are other investors lacking)? Likely not in the ‘stars’, but perhaps in the ‘question marks’ if there are information asymmetries or other barriers?

  • Paul Brest's avatar

    BY Paul Brest, Stanford Law School

    ON September 5, 2013 03:40 PM

    Hello Fabian and David, and thanks for your very thoughtful comments.

    With respect to Fabian’s comment and David’s last paragraph, we think of impact investing as a stage of a developmental process. Most fund managers, who attract only a subset of investors with particular social or environmental interests, would like nothing better than to solve the problem of limited information and appeal to ordinary market investors. If and when they succeed, impact investing has played its (very constructive) role in opening the markets to investors at large. That’s just what David Chen at Equilibrium Capital is trying to do. (And, Fabian, I would direct your question about financial products in conservation to David Chen, who is a pioneer in this field.)

    On David Wolf’s major point, we were focusing on the operation of markets, pure and simple, and did not address the potential for shareholder activism to change corporate behavior. (You’ve given us an idea for the sequel.)

    Paul and Kelly

  • BY Michael Kieschnick

    ON September 8, 2013 11:40 AM

    It would be helpful to readers if you could point to some data. It is one thing to create categories or characteristics, whether they are continuous or binary, but it is quite another to illustrate with data. In particular, while it is surely trivial to point to lots of examples of particular impact investments that hoped for but did not achieve market returns, it would be more helpful to point to examples of impact investing that did achieve significant returns (market or otherwise) and then examine whether they had social impact and whether non-impact investors ignored the opportunity.

  • Paul Brest's avatar

    BY Paul Brest, Stanford Law School

    ON September 9, 2013 03:52 PM

    Hi Michael.
    We conclude the longer version of the article, http://www.ssireview.org/articles/entry/unpacking_the_impact_in_impact_investing, by proposing a research agenda that includes the issues you mention. Our purpose here was merely to create a framework for exploring those issues.
    Paul and Kelly

  • BY Cathy Clark

    ON September 10, 2013 07:30 PM

    Thanks to all for a very thoughtful exchange. Please read our response in the Huffington Post (http://www.huffingtonpost.com/cathy-clark/impact-investing_b_3850296.html). The three of us have spent the last two years on an in-depth study of impact investing funds with exceptional financial and social returns.  We see a set of common practices emerging that are very different from much of the theory in this piece (though they are echoed in ways large and small across all of the practitioner responses, many of whom have been engaged in our study).

    We shared more of this at SOCAP13 last week and will be releasing more detail in the coming months. We believe this is a good, healthy debate and it is very important for the field to refine its theoretical frameworks based on a better understanding of how successful funds actually behave with regard to the pursuit of their objectives. As a result, hopefully more of them will succeed.

    Cathy Clark, Jed Emerson and Ben Thornley

  • Paul Brest's avatar

    BY Paul Brest

    ON September 11, 2013 04:41 PM

    Some Clarifications

    Based on some comments we’ve heard from SOCAP and elsewhere, we would like to clarify three aspects of our article.

    First, we think it is an unhelpful diversion to define who is and who is not an impact investor. Hence, our analysis focuses not on the investor, but on the impact of a particular investment. And whether any particular investment has impact may depend on the context in which it is made.

    For example, we imagine that most of the investments made by the funds described in http://www.impactassets.org/ia50/ have what we term “investment impact,” because their investee enterprises are unable to attract ordinary commercial investors. But suppose that one of those enterprises does so well that it attracts lots of commercial capital—for example it goes public and its stock is doing well on a major stock exchange. At that point, the nature of public markets makes it doubtful that an investor’s purchase of the company’s publicly traded stocks has investment impact. This is not to say that the organization stops having social or environmental impact, but simply that the number of investors now willing to support the enterprise is so abundant and diffuse that additional investments by impact investors are unlikely to contribute much to its outputs.

    And this brings us to the second point. Some enterprises may depend perpetually on impact investors. But when an impact investor brings an enterprise to public markets, this is a great achievement. As we wrote: “Here, impact investors have played their part, … the impact investing story is over, and the enterprise is now supported by customers and ordinary market investors.” Like teachers or physicians who have brought their students or patients to the point where they are no longer dependent on their services, the impact investor should be proud of his accomplishments and look for the next opportunity.

    Finally, our description of the parameters of impact should not be taken to suggest how much measurement impact investors should engage in before making investments. In the longer version of the article,  we wrote: “The estimations, assessments, and evaluations described here all involve costs—greater or lesser depending on their degree of rigor. While this article provides a framework for undertaking such analyses, we have no a priori commitment to a particular depth of analysis. Our own view is that research and evaluation costs must be justified in terms of their likely benefits in improving the investment decision.”

    Paul and Kelly

  • Paul Brest's avatar

    BY Paul Brest

    ON September 15, 2013 03:14 PM

    In their SSIR post of September 10, Cathy Clark, Jed Emerson and Ben Thornley refer to their Huffington Post article. Because Huffington Post won’t take a reply as long as ours, we’re responding here.

    The field will benefit tremendously from Cathy, Ben, and Jed’s forthcoming analysis of impact investing funds. But we think that it will be held back if investors misunderstand the concept of additionality and fail to incorporate it in their practice. Without a commitment to the ideal of additionality, version 2.0 not only will be an empty practice but it will invite greenwashing.

    We will quickly distinguish enterprise impact from investment impact. We’ll then focus on the latter, and distinguish the ideal of additionality from the question of whether and how to test for it.

    Enterprise impact depends on whether a company is making real social or environmental contributions (according to your values). In our own view, many large cap companies, ranging from Google to Home Depot, have enterprise impact, as do many smaller enterprises including those providing sanitation and financial services to people living at the base of the pyramid and supporting sustainable agriculture and forestry.

    Investment impact is concerned with how much difference your particular investment contributes to an enterprise’s impact. It’s the nature of large cap publicly traded markets that an investment in Google is not like to increase its socially valuable outputs. Therefore, most impact investors focus on less amply capitalized, typically much smaller, firms. They do this because they implicitly embrace the ideal of “impact,” which means making something happen that wouldn’t happen otherwise.

    Additionality is just a synonym for impact in this context. It means that an investment ultimately increases the quantity or quality of an enterprise’s socially valuable outputs beyond what would have otherwise occurred. If an investment doesn’t do that, what social value does it have?  This does not mean “all or nothing.” There are many degrees of additionality, but the threshold for impact is that the investment must make some positive difference.

    Does this require an impact investor to ascertain whether every investment has investment impact? By no means. The research that goes into determining impact can be expensive, and its cost must be justified in terms of its likely benefits in improving investment decisions and increasing social value. There are hundreds of impact investing funds out there, and we can’t wait for Cathy and her colleagues to do a painstaking analysis of each one before making investment decisions.

    Yet there are some situations in which investments are likely not to have impact. We already mentioned a major category of this sort: where the investee enterprise is attracting ample commercial capital from ordinary investors. Here, we think, a socially-motivated impact investor should question whether his investment is actually making any difference in improving the enterprise’s impact. For most impact investors, keeping their eyes on the prize of additionality and avoiding claiming impact for obviously non-additional investments should suffice.

    But what about going beyond mere additionality to catalytic impact investing? There are at least two ways to be catalytic. The first is to grow the sector. One notable example of this, done largely through philanthropy, is to support the sector’s infrastructure. The Rockefeller Foundation and Omidyar Network have been pioneers here.

    A second way to be catalytic is to graduate valuable social enterprises from niche markets to mainstream markets by attracting ordinary commercial investors, while at the same time keeping the enterprises true to their missions. When impact investors have done this, they should take pride in their accomplishment and look for the next opportunity to have impact.

    The concept of additionality is not unique to impact investing. For example, it is essential to the domain of carbon offsets where, to quote Brighter Planet, it is designed to “ensure that any greenhouse gas reductions from a project are ‘in addition’ to what would have happened anyway. Otherwise giving money to the project doesn’t achieve any extra environmental good.” We don’t believe that 2.0 should aspire to anything less in terms of adding social or environmental value.

    Paul Brest and Kelly Born

  • BY Jane Hughes

    ON September 18, 2013 09:00 AM

    How do you know if a social investment is really creating impact? In a time of lively conversation about “impact investing,” market participants continue to debate the definition of an impact investment and the nature of the impact we seek to achieve. At Social Finance, we have taken a deliberate effort to direct capital to areas with market frictions and to work where investor returns are contingent on the achievement of social outcomes. In this context, we are gratified to see the Brest and Born article (When Can Impact Investing Create Real Impact?) and the valuable framework the authors put forward for evaluating the impact in impact investing.

    Core to our work at Social Finance is the Social Impact Bond (SIB), an innovative outcomes-based financing mechanism that mobilizes private capital to drive social progress. By funding the expansion of effective, prevention-based social services to underserved individuals and communities, SIBs create unique value for taxpayers and generate sufficient benefit for government to repay investors for their upfront investment. While the SIB market is still young and largely untested—the first US SIB was launched in 2013, and participants in this market are still absorbing the lessons of other impact investing sectors—it provides a useful paradigm to explore the model that Brest and Born outline.

    The authors describe three types of impact: enterprise impact, nonmonetary impact, and investment impact. A well-designed SIB has the potential to effectively generate impact in all three categories.

    • Enterprise impact: Brest and Born define enterprise impact as “the social value of the goods, services, or other benefits provided by the investee enterprise.” As SIBs channel funding to enterprises that deliver valuable social outcomes for populations in need, they should create enterprise impact by definition. The SIB delivers both product impact (“the impact of the goods and services produced by the enterprise”) by funding scaled-up services, as well as operational impact (“the impact of the enterprise’s management practices on its employees’ health and economic security”) by achieving valued outcomes and enhancing the well-being of the community. In a SIB this impact is not simply theoretical but estimated a priori as part of the contract structuring, and assessed independently post hoc to evaluate the actual impact.

    SIBs incorporate the use of rigorous statistical models to measure this social value as expressed through outcomes rather than outputs. For a SIB aimed at tackling prisoner recidivism, for example, the basis of measurement would not be the number of prisoners served by SIB-funded interventions (an output). Rather, measurement would focus on the achievement of a reduction in recidivism or another socially-valuable outcome associated with an improvement in the prisoner’s life. Accordingly, government payment would not be based on services rendered but on government’s valuing of - and the providers’ achievement of - these outcomes. Government’s value would likely be based on the reduced costs of the criminal justice system when prisoners do not recidivate, as well as the increased value to the macroeconomy from ex-prisoners who are productively employed.

    • Nonmonetary impact: SIBs provide enterprises and the community with more than funding. The SIB structure encourages greater focus on the use of evidence in government decision-making. Based on the principle of pay-for-success, SIBs make government’s requirement to pay for programs contingent on the successful achievement of predefined outcomes. As a result, government performance risk is reduced, taxpayers’ resources are used more efficiently, and increased transparency is brought to the use of taxpayers’ money. Moreover, SIBs shift attention and resources to prevention rather than remediation in the provision of social services.

    Key to the SIB market are intermediary organizations that help identify high-quality providers and interventions, negotiate with government, and structure and raise the capital. In the Brest/Born framework, financial intermediaries like Social Finance achieve nonmonetary impact by:
    o “Improving the enabling environment for social enterprises and investor” - SIB intermediaries facilitate investment opportunities by connecting social enterprises, investors, and the government and by articulating their common social and financial goals. Intermediaries in the SIB market have helped shape SIB-enabling legislation and the government’s procurement of SIBs.
    o “Finding and promoting investment opportunities” – Intermediaries identify best-in-class service providers that meet key SIB criteria, including the ability to produce monetizable outcomes within a reasonable time horizon. For example, Social Finance has teamed with Collective Health to launch a demonstration project in Fresno, CA that aims to prove the concept of up-front investment in asthma education and management services for low-income families of children with asthma. This project is designed to find and promote an investment opportunity, and pave the way for issuance of a SIB.
    o “Securing and protecting the enterprise’s social mission” - For a SIB to be successful, it must meet the interests of all three sets of stakeholders (government, investors, and service providers). Effective intermediaries assure that SIB metrics align with an enterprise’s theory of change, are valuable to society, and are likely to be achieved, as determined by a rigorous assessment of past performance. A SIB contract should explicitly ensure that metrics meet these three objectives and ensure that the program remains true to its core mission. 

    • Investment impact: Brest and Born define investment impact as “a particular investor’s financial contribution to the social value created by an enterprise.” SIBs have the potential to achieve investment impact by funding the scaling of social services to a quality and/or quantity that otherwise would not have been achieved. SIBs were developed because of a dearth of funds from philanthropy and government to scale up social services, so by definition SIBs provide more capital than the enterprise would otherwise received.

    Brest and Born draw a line between concessionary and non-concessionary investments, arguing that the return sacrificed by a concessionary investment by definition creates impact. Under this framework, it is clear that concessionary capital provided through SIBs provides investment impact. Indeed, most SIB funding has been on concessionary terms, with early projects involving grants, credit enhancements and/or guarantees from philanthropic backers.

    On the other hand, the authors argue that if the impact investor does not provide capital on concessionary terms, “what can [the impact investor] contribute that the market wouldn’t do anyway?” We could rephrase this question: Do SIBs simply repackage grant money that would otherwise have funded social service providers, or do they actually tap into new pools of capital to fund the sector?

    We believe that SIBs have the potential to attract non-concessionary funding, i.e. investment impact in the Brest/Born framework. The SIB market is born of what the authors term “perspicacity – discerning opportunities that ordinary investors don’t see” –  and creates formerly unseen or unarticulated connections between market returns and social impact.

    As Brest and Born explain, market frictions can obfuscate potential investment opportunities and create unique opportunities for enterprising investors to create impact. Therein lies the appeal of SIBs.
    o Imperfect information and skepticism, for example, may create the perception that the risk of investing in social programs is greater than the reality. This perception would lead many commercial investors to avoid instruments like SIBs. Moreover, as a connection between the value that social service providers generate and the opportunity for investment still needs to be articulated on a case-by-case basis, capital would not be directed to these investments but for intermediary organizations and SIBs.
    o The small deal size and illiquidity of early SIBs may deter some investors.
    o Inflexible institutional practices and governance problems, such as silos within government and the tendency to continue entrenched social programs despite a lack of data on their efficacy, may prevent the scaling up of effective, preventative programs.

    These frictions make the market for funding social programs imperfect – and that is the opportunity that SIBs address. Investors who can “see something that you don’t” can look beyond the perceived risk and illiquidity of the market, for example, to discern a viable investment opportunity. In particular, investors may find the SIB’s lack of correlation a very appealing characteristic. Government officials who can overcome long-standing practice to embrace the principle of pay-for-success, similarly, can create those viable investment opportunities. Intermediaries can help these parties see the connections and opportunities and as a result create investments that otherwise would not exist.

    Well-designed SIBs have the potential to increase both the quantity and quality of investment in the social sector beyond what would otherwise have occurred, creating investment impact under the Brest and Born rubric. Quantity is achieved by driving investment capital to the social sector on both concessionary and non-concessionary terms, thanks to investors who have the perspicacity to divine opportunities that others fail to see. Quality is achieved by emphasizing outcomes and performance-based programming, which enhances the efficiency and effectiveness of social interventions.

    In this article, Brest and Born put forward an important rubric for active impact assessment that fits well with the SIB framework. We believe that this rubric will also be valuable in exploring other sectors within the impact investing space, and in spurring further initiatives for the benefit of investors, government, and society.

  • Nathan Barnett's avatar

    BY Nathan Barnett

    ON September 18, 2013 03:21 PM

    Wonderful article! Are the authors or fellow readers aware of any available databases maintaining a list of impact investment firms?

  • Paul Brest's avatar

    BY Paul Brest

    ON September 18, 2013 08:02 PM

    Thanks a lot, Nathan. For starters, take a look at http://www.impactassets.org/ia50/
    Also, the forthcoming work by Cathy Clark et al, mentioned in her Sept 10 post, above, promises to be very helpful.
    Paul and Kelly

  • Jason Kaminsky's avatar

    BY Jason Kaminsky

    ON September 22, 2013 08:25 AM

    Thanks for the thoughtful article. As a follow up to Nathan’s question, what about funds that don’t require individual investors to be wealthy already (ie, funds targeted at the ‘consumer’ market?) I’ve only found a few that will take minimum investments in the thousands (Calvert and RSF come to mind) but curious if there are others as well. The IA50 doesn’t provide a filter for this, and when I last went through it by cross-referencing on Google, I found very few matches.

  • Jason Bade's avatar

    BY Jason Bade

    ON September 23, 2013 09:22 AM

    Re: Jason Kaminsky

    You’re right that there aren’t many options. While RSF’s minimum buy-in is $1000, Calvert does allow you to invest as little as $20 via the Microplace platform. To invest via brokerage, a minimum investment of $1000 is required.

    Speaking of MIcroplace, it and similar websites (Kiva, Mosaic) offer unaccredited retail investors access to what would otherwise be private investment opportunities…generally microfinance (or solar panels, in the case of Mosaic).

    All of the aforesaid are investments I would make outside of my typical asset allocation (the returns are so low and tickets sizes, small, that it is, more or less, philanthropy with money back). To seriously align your investments with value at the retail level, your best bet is in the public securities market, with ESG- and impact-screened mutual funds or selecting specific equities to buy stocks of. Examples (again, limited), include Domini (a mutual fund) and TriLinc (another mutual fund). Social Stock Exchange singles out “impact” companies that are available on the London Stock Exchange.

    Outside of investing, you could also move your deposits to a community or green bank. Examples include New Resource Bank in SF, One PacificCoast in Oakland, Triodos in the Netherlands, and Charity Bank in the UK.

  • BY Lucas Hartley

    ON October 23, 2013 12:08 PM

    Thanks for your articles!  I have seen impact capital put into developing world businesses using traditional US VC models but without any evidence that the business can scale or achieve an exit.  I wonder if the investment tools we have for “traditional investing” are really appropriate for the “triple bottom line” impact space.  my most recent blog on the topic is at http://impactethics.weebly.com/blog.html

  • Felix Claus's avatar

    BY Felix Claus

    ON November 25, 2013 11:23 AM

    Thank you for your great article “Unpacking the Impact in Impact Investing”. It gives a great insight into the impact investor field and is very well written.
    There is one aspect, which I rarely see in in published research, that I feel is to some extent overlooked by professionals in this field; methods to sustain social impact in the post-investment phase. The focus of measuring social impact for impact investments seems to be greatly on the short-term, rather than actively implementing long-term strategies to ensure the continuation of social returns beyond the investment horizon. What I am referring to is the greatly increased potential of impact enterprises creating social impact after their exit and the apparent disinterest of impact investors to actively ensure reaching this potential, once they have no more direct connection to the impact enterprise. I think that this matter is particularly important, considering the changes that such an impact enterprise goes through, once it becomes larger; changes in management, corporate structure, sales strategies, etc. These changes can dilute the social mission statement and in the extreme case, overshadow precedent positive impact by actually worsen the situation. You have mentioned several examples in your article “Unpacking the Impact in Impact Investing”, where impact investors stepped in to prevent such a social mission dilution, however they seem to be rather unique cases. I think that this issue should get a little more attention, as it is in the impact investors’ best interest to maximize social return, even beyond the period, in which financial returns are possible to achieve.

    Best regards,

    Felix Claus

  • BY Peter Burgess

    ON December 20, 2013 08:46 AM

    I am trying to get my head around everything that has been said in this wonderful dialog.

    However, unless I am much mistaken, the one thing that I consider to be absolutely essential to radically improve business and socio-economic performance ... meaningful metrics ... is discounted to near zero.

    This is unfortunate. It is very difficult to manage anything unless there are key metrics that measure progress and performance.

    But it is worse than this, because we actually do have a suite of very powerful metrics that are reported on by the business press 24/7 ... business profit, capital market prices and GDP growth. The sad reality is that these measure ignore externalities, and what is good for these metrics is very bad for society and the environment.

    I am developing what I call Multi Dimension Impact Accounting (MDIA) so that the CFO can start to report in an easy and understandable way the organizations performance with respect to all the elements of the Triple Bottom Line and more. In addition the same data architecture enables rigorous performance metrics for communities (place) and product (the life cycle value chain issue) and individual people whose behavior is the ultimate determinant of everything.

    That said ... the dialog is very stimulating. I need more time to fully appreciate what everyone has said. The good news is the subject is now mainstream, even though there are no metrics to support it that are yet mainstream!

    Peter Burgess - TrueValueMetrics
    Multi Dimension Impact Accounting

  • Jordan Sinclair's avatar

    BY Jordan Sinclair

    ON January 13, 2014 05:59 AM

    Excellent article.What are your thoughts on the work of firms like Instiglio and Development Impact Bonds? Could this be a viable alternative in the future to improve the social impact of an investment?

  • I first of all want to apologize for asking what i’m about to ask in this way but I really need assistance so i am asking people in every forum, comments, etc that I come across online and I really hope it does not annoy anyone.

    When my grandmother passed away she left me with some financial assistance to purchase a house. I have always been very passionate about solar technology and I saw this financial opportunity to start a business. So I went and hired a legal counsel and began working on starting a corporation.

    I dont want to get to in to it because im still pretty upset but i was completely taken advantage of from by attorney from the very start. I believed that they really were there to help me succeed. I have everything i need to move forward including my office that im about to lose but they drained my resources.  I was hoping someone might know if there are any organizations that might be willing to help someone in a situation like mine.

    in addition I have come up with a patent, 2 more that are submitted, and one more that i am working on that I know will be a hit.. If you would like to see my website i had made please let me know and thank you

    .(JavaScript must be enabled to view this email address)

    .(JavaScript must be enabled to view this email address)

  • BY Bertrand Moulin

    ON July 2, 2014 03:17 AM

    Paul and Kelly,
    This is a very interesting article.
    The ultimate goal of impact investment is to act as catalyst so that more (commercial) investment flows in.
    If we take the example of Microfinance: the first and/or the more risky investments were made by Development Financial institutions.
    If interested, I have written an article about this, please refer to the url below.

  • BY Dave Vernon

    ON December 21, 2014 01:29 AM

    Really appreciate all the dialogue. It is varied and thoughtful. Thanks

  • BY Ahmed Sofyan

    ON July 28, 2015 07:43 PM

    Very interesting. I love posts with this theme. A cash flow, is the form of how healthy the budget management for your business. and this also applies to business investment and your property. there are many things needed for it. Your funds have made the details very well. This information is important. nice post.

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