Some interesting reflections from Forbes today…

Impact Investing: Unleashing Institutional Capital

The ability of impact investing to earn both a financial and social return is appealing, all the more so in light of the excesses of finance over the last decade. But taking the sector from concept to reality requires pragmatic approaches to addressing the needs of capital providers as well as investees. Global organisations are starting to take note of these needs, with the recent publication of the World Economic Forum’s excellent report ‘From the Margins to the Mainstream’ which focused on the needs of institutional investors. Similarly, the Fall edition of the Stanford Social Innovation Review also looks at how impact investing can create real impact.

While many will argue over definitional nuances of what impact investing is, it is fair to say that its transformational potential rests on the focused and deliberate granting of access to capital to neglected segments of the economy or population in order to generate both a measurable social impact and a financial return.

It is therefore a natural assumption that if opportunities exist to invest capital at an attractive rate of return, capital should flow to them. But in the impact investing space, this appears to have not yet happened on a material scale. It is similarly clear that the largest pools of capital are held by institutional fund managers. Yet they are largely not participating in the space. Why not? There is increasing evidence of the ability to earn a market rate of return on some impact investments and ample evidence of opportunities to invest capital for significant social returns. What is constraining the growth of the sector?