As Impact Investing Grows, It Moves Toward Defining Moment
Monday, February 20, 2017
Impact investing is in the midst of explosive growth as more investors look for ways to become involved. More investment capital flowing into impact investing strategies means more opportunities to make positive social and environmental change. Yet, while growth unlocks new and exciting possibilities, it also fuels long-lingering questions.
As the impact investing industry grows, there are, for example, calls for increased clarity around definitions. What is impact investing and what isn’t? These questions become more commonplace as more people learn of our industry. The alphabet soup of related terms — ESG, SRI, MRI — encompasses hugely important practices, but might confuse newcomers seeking to integrate considerations of values and impact into their investing.
Those of us who believe in the potential of impact investing to drive social and environmental change want to make sure the term retains its value and that the industry does not lose its necessary focus while benefiting from much-needed growth. The impact investing industry is too important to the future of our world to fall victim to “definition creep.”
Still, it’s early days in what is likely to be a multidecade process. Monitor Institute’s 2009 “Investing for Social & Environmental Impact” report, which provided a blueprint that seeded the Global Impact Investing Network’s agenda, predicted four stages in the evolution of the industry. First, disparate entrepreneurial investors start innovating independently. Second a marketplace takes shape as activity and infrastructure develop. Third, the value of the marketplace is captured and significant numbers of mainstream financiers enter. And the fourth is maturity, when activity reaches a steady state. Impact investing is already well into the second stage; the track records of early pioneers and data confirming the viability of impact investing are encouraging mainstream financial institutions, across all asset classes and regions, to enter the industry. We are on the cusp of transformational growth.