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

Friday, May 9, 2014

Today, our new e-book, The Power of Impact Investing: Putting Markets to Work for Profit and Global Good, hit the digital shelves. This e-book has been in the making since 2007, when the term “impact investing” was first coined at a convening hosted by the Rockefeller Foundation at our Bellagio Conference Center. Seven years later, we are proud that impact investments are punching bigger than the weight of those two words, providing a vibrant and viable option for investors looking to generate both financial return and make social or environmental impact.

Here’s what we’ve learned along the way:

1. Impact investing is incredibly diverse. While all impact investing is united by a dual intent to generate both financial and social returns, the opportunities within the umbrella are vast. They include microfinance, affordable housing development, conservation and renewable energy finance and social impact bonds, to name just a few. And it varies by asset class, the investor’s risk tolerance and expectation of return, sector and geographical scope. Impact investments can take the form of equity, debt, cash deposits or another hybrid form. Investors are as diverse as impact investing itself—ranging from private bankers, institutional investors, board members of nonprofits, or the smaller-scale crowd-funders who represent an array of goals, appetite for risk, amount of capital to spare and time horizon. There is something for everyone.

2. Impact enterprises are at the heart of impact investing. Impact enterprises—more traditionally referred to as social enterprises—combine passion with good ideas. They are creating jobs, providing critical goods and services, and creating social and environmental benefits. Without these enterprises and other, non-enterprise destinations for capital—such community facilities and sustainably managed natural resources—impact investors could not translate their dollars into their desired impacts. For example, an impact investor who wanted to help improve sanitation in Africa could not do so much without enterprises, such as Ecotact, which developed a waterless toilet that is funded through modest user fees and local advertising. More work is needed to build a robust pipeline of impact enterprises to absorb the incoming capital.