Impact Investing: Putting Ideas Into Practice

Harnessing the hype of impact investing was a key discussion theme nearly two years ago at the World Economic Forum Annual Meeting 2012 in Davos-Klosters, Switzerland. The forum convened mainstream and impact investors, as well as social entrepreneurs, and a list of sector constraints emerged: the perceived conflict between social responsibility and fiduciary duty; the fragmentation of the impact investing universe into small intermediaries and small deal sizes; and the lack of an established track record of exits for investors in double-bottom-line companies. While all were ostensibly overwhelming reasons why impact investing should remain a niche activity, the opportunity to bring it into the mainstream was too important to miss.

With this in mind, the forum launched the Mainstreaming Impact Investing Initiative. The first milestone—From the Margins to the Mainstream: Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors—was released in September 2013 and provided an overview of the sector, identified challenges constraining the flow of capital, and laid the groundwork for mainstream investors to begin a meaningful discussion on impact investment as a strategy.

The report was a good initial step at clarifying the impact investing field, but given the relatively small scale of impact investing, we realized that more than clarification was needed. Readers of the report have reached out from far and wide to ask for advice on how to start (or do even more) with impact investing. While we could hypothesize and make suggestions, only impact investors themselves can speak with authority about what does and doesn’t work, and why. With that in mind, we asked some of the leaders in impact investing to write a new series of action-oriented and insightful pieces on putting impact investing to work.

The result was a second report, From Ideas to Practice, Pilots to Strategy, that takes a deeper look at why and how asset owners began to include impact investing in their portfolios and continue to do so today, and how they overcame operational and cultural constraints affecting capital flow. Over the next several weeks Stanford Social Innovation Review will publish a selection of five of the 14 articles from that report. The authors include leaders from some of the world’s foremost impact investment funds and organizations that collectively invest billions of dollars. These include the World Bank’s IFC Asset Management Company, TIAA-CREF, the US government’s Overseas Private Investment Corporation, Social Finance US, and Zurich Insurance Group.

Because the sector is in a nascent stage and engages diverse individuals, organizations, and societies, no one solution will apply to every situation. And while these articles can serve as a trailhead for the uninitiated or a fresh path for new practitioners, much more trailblazing is required before the sector can call itself mature.

We advocate learning by doing, failing fast, synthesizing feedback, and quickly re-engineering shortcomings into a more informed approach. Above all, we believe that intentions (and certainly good ones) matter with every action and step towards building a new sector. With these principles in mind, we can collaboratively and proactively ensure that developments take the best path forward.

Read more stories by Michael Drexler & Abigail Noble.