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

Tuesday, February 7, 2012

For many years, we have been trying to stimulate entrepreneurial activity to address some of the most stubborn as well as newly arising social needs and problems. Today, we are at an inflection point: the path forward looks different than the one we’ve travelled. While access to financial capital remains important, providing financial capital alone isn’t enough to encourage innovation or to scale and replicate solutions that work. A new industry financing social impact can be built only “along with” and not “on top of” existing support mechanisms and funding vehicles for social ventures and enterprises.

“Impact investing” is predicted by analysts to become a $500 billion industry. It has been growing in popularity in the past few years, attracting a diverse set of players with a range of expectations regarding financial returns. Across the globe nearly 200 impact investment funds are now registered and many foundations, networks, and mainstream financial institutions are becoming active in this space.

But the growing excitement around the overall market potential and the higher return expectations of some newer entrants raises a number of questions. Are we creating yet another hype based on a bubble filled with good intentions and hope? Are we too narrowly focused on financial markets and thereby missing out on more holistic approaches to support social innovation?

I have the pleasure to chair a group known as the Global Agenda Council on Social Innovation. This council is in a unique position to discuss such questions in a frank and open way. The council, initiated by the Schwab Foundation for Social Entrepreneurship in collaboration with its sister organization, the World Economic Forum and guided by Mirjam Schoening and Katherine Milligan, brings together leading academics in the field of social entrepreneurship, pioneers in impact investing, and globally recognized social entrepreneurs to address some of the most pressing issues facing the impact investing industry. Greg Dees, Jacqueline Novogratz, Alvaro Rodriguez Arregui, Andrea Coleman and Asad Mahmood are just some of the leaders who contribute to this generative effort ensuring that this nascent industry reaches its potential and promise.