NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 28, 2013

By Mitchell Kutney

As the investment culture expands from simply the bottom line of profit to an increased focus on the triple bottom line (social, environment and profit), philanthropy will continue to be an essential catalyst in unlocking the potential of impact investing. This is because these game-changing funding models may not achieve the necessary scale to produce a profit without some initial subsidies.

In this new climate, it is difficult at times to keep up with the jargon and modern nomenclature. Many articles interchangeably refer to fledgling terms, such as venture-philanthropy, mission related investing, blended value finance, impact investing and social finance, etc. Also, because of the proximity of these terms, they are often treated as instruments of philanthropy, when they are much better represented in the investment domain.

With the rise of GIIRS, B Corp certifications, social and/or environmental impact metrics etc., and events like the G8 Social Investment Forum, it is clear that investors are collectively caring more about society and the environment, and not just profit. However, due to various reasons of scalability, growth rates, financial traction and the relative novelty of impact investing, donations are often required to top off successful investments. This is why bridged terms such as venture-philanthropy are being introduced, as they reflect the heterogeneity of impact investing.