Beware of overburdening a promising investment is a good warning especially as governments cannot spend, must retract and need to find a solution. SI can be the answer but the rollout needs to be sensible…

Making Impact Investible: Maximizing The “Investment” Of Impact Investment

Greater awareness about impact investment has come with deeper scrutiny of the investors and investment products populating the market. From products that provide market rate and below-market rate returns to investors that are characterized as either “impact” first or “financial” first, or some combination of the two—the range of expectations and motivations driving the growth of the market is diverse.

Making Impact Investible and its companion Primer that was commissioned by the U.K. government for the G8 Social Impact Investment Forum, both authored by Dr. Maximilian Martin of Impact Economy, offer a number of insights making sense of the factors influencing the development of impact investing and market building. These reports argue that the full engagement of different investor groups – from philanthropic investors to angel and venture stage investors, private and institutional investors, and financial services institutions – can enable the market to provide the capital needed for an effective response to the megatrendsreshaping our world.

When Dr. Martin and Arthur Wood invented the contingent returns model in 2005 – linking a social metric to a financial return for the first time and providing the conceptual basis of what was later called the Social Impact Bond (although it is a structured product) – their arguments sounded revolutionary (see Market Based Solutions for Financing Philanthropy).

Today, that discussion lies behind us as consensus grows that the structuring expertise available in finance needs to be applied to funding social problems if we ever want to solve them.

Beware of Overburdening a Promising Instrument

Impact investors should build an impact capital market that is not dwarfed by the magnitude of the challenges. To achieve that, we will need a full shelf of financial products. This gap is one of the major contributing factors holding back a comprehensive and balanced development of the market.
Given the attention that impact investing has received recently and the proliferation of social impact bonds (SIBs), identifying growth constraints might be viewed as unnecessary alarmism. So let’s be specific.