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A Design orCaaz An emerging inDustry
cad b
m i
investing orscal &eal impACtexecutive summary
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i nw Yk Cy, a lw-c h a apa bul lad dlpd wh a la
h nw Yk Cy Acqu ud. The Fund, created in 2004, aims to acilitate the construction o 10,000 units
o aordable housing in a city with rapidly diminishing aordable housing stock. The Fund came together when
private oundations made $32 million in low-interest, subordinated loans and a city-based charitable trust invested$8 million on similar terms, enabling commercial banks to raise and place more than $160 million o commercially
priced debt into the und.
i ual tazaa, a ud ad a h by h lh a lcc lh bulb pwd by a la pal
h h buh cd a lcal dbu. The distribution business could reach her village because o
an equity and working capital investment made by E+Co, a nonprot mezzanine und ocused on making debt and
equity investments in businesses that develop and sell modern energy services.
i Cabda, a all bu xpad wh db a cac bak. The bank is originating new
loans ater accessing commercial capital markets through a $110 million loan und structured in 2007 by Blue
Orchard, a Swiss micronance-ocused asset management company, and Morgan Stanley. The loan und, rated by
Standard & Poors, was syndicated on commercial terms among institutional investors, such as pension unds, in
Europe and the United Kingdom.
The New Yorker moving into her rst home, the student in Tanzania studying under
electric light, the small-business owner in Cambodia expanding her payrollnone o
these people would recognize one another as co-participants in the same emerging
industry. Neither, perhaps, would the commercial banker placing debt in the Acquisi-
tion Fund, the high-net-worth individuals investing in E+Co, or the German worker
whose pension und invested in micronance through Blue Orchard.
Yet these are all examples o the prolieration o activity occurring as a new industry
o impact investing emerges. This industry, which involves making investments that
generate social and environmental value as well as nancial return, has the potential to
complement philanthropy and government intervention as a potent orce or addressing
global challenges at scale. This document is intended to shed light on the industrys
recent emergence and highlight the challenges it aces in achieving its promise.
WhAt is impACt investing?
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1
t a w d a a a,
a ac da a b a ,
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ad a d. edc a a ad ad
ad b b a d a w .
t a aad x w , ad a c
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overvieW
Thats why the idea ousing prot-seeking investment to generate social and environ-
mental good is moving rom a periphery o activist investors to the core o mainstream
nancial institutions.
These impact investors want to move beyond socially responsible investment, which o-cuses primarily on avoiding investments in harmul companies or encouraging improved
corporate practices related to the environment, social perormance, or governance. In-
stead, theyactively seek to place capital in
businesses and unds that can provide so-
lutions at a scale that purely philanthropic
interventions usually cannot reach.This
capital may be in a range o orms includ-
ing equity, debt, working capital lines o
credit, and loan guarantees. Examples in
recent decades include many investmentsin micronance, community development
nance, and clean technology.
The pressing question is whether impact
investing will remain a small, disorga-
nized, underleveraged niche or years or
even decades to comeor whether leaders
will come together to ulll the industrys
clear promise, making this new domain a
major complementary orce or providing
the capital, talent, and creativity neededto address pressing social and environ-
mental challenges.
Our premise is that there is only one ac-
ceptable answer. It matters a great deal that
more o our eras assets are used to address
some o its most troubling challenges.
Ab t r
The point o view expressed here was ormed ater exten-
sive scouring o existing studies as well as a convening o 45
investors and intermediaries interested or engaged in invest-
ing or impact. It refects more than 50 original interviewsconducted with a range o investorsincluding private
individuals, amily oces, investment banks, institutional
investors, oundations, and pension undsabout their
experience with investing or impact, how they think it may
evolve, and what will best accelerate its evolution. While
no one can predict with certainty how the global economic
markets will evolve, we also have sought through these
dialogues to understand the potential implications o the
nancial crisis o 2008 on investing or impact.
Our ndings are organized into our sections:
A description o the emerging industry
Hypotheses about how impact investing might evolve
An approach or accelerating the growth and impact o
this style o investing
A call to action or building the industry
overvieW
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i sca ad ea iac: A D Caaz a e id2
gw a capal pd, w a w a-wa dca ada d aac. i a b d b w c ad a-d c ba, a w a c adxcd a c ad ada.
ga c h d c lu cal ad al chall, w ca a ad w q.
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.
opportunities ChAllenges
An inDustry emerges
Impact investing is being propelled by a powerul set o opportunities that appear likely
to continue or even strengthen despite the capital market shocks that began in 2007. But
there are also many existing challenges that stand between the promise and the realityor impact investors, and these will need to be tackled or the industrys development to
accelerate.
The global nancial crisis has the potential to ampliy some o these opportunities and
challenges. In the short term and on the downside, it will likely dampen interest among
potential investors not yet engaged, who may retreat to conservative investing. General
mistrust o markets and market innovations as a result o the crisis could also constrain the
development o investing or impact.
On the other hand, a macroeconomic slowdown may make impact investing more attrac-
tive or those already engagedparticularly those who are driven primarily by social andenvironmental impactbecause it helps diversication and assets are relatively cheap ater
the market drop in 2008. Given how seriously the market has mispriced risk, the expec-
tations o appropriate return or appropriate risk may be changing, and this may render
impact investing more attractive (or example, i relative risks such as poor governance are
lower). The lack o opportunities in traditional nancial markets will likely increase the
ability to recruit high-level talent into investing that has a purpose beyond making money.
Moreover, there is tremendous potential upside i the inevitable government regulation
that results ends up encouraging investment that takes into account other actors besides
nancial gain.
The net eect o the economic climate on investing or impact is impossible to predict. Butwhat is certain is that most o the ollowing opportunities will persistand the ollowing
challenges will need to be surmounted.
iaci:
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caa b
ad d a
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ca
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3An inDustry emerges
Our research indicates that as a result o this confuence o opportunities and chal-
lenges this emerging industry has reached a transitional moment in its evolution. It
is poised to exit its initial phase o uncoordinated innovation and build the marketplace
required or broad impact, as illustrated in the diagram o the prototypical phases o in-
dustry evolution.
Sectors within impact investingsuch as micronance and community development
nancehave moved through these phases at dierent paces, sometimes with uncoordi-nated innovation emerging over decades and the marketplaces built in as much as a decade
or so.
But recently it has become possible to start to see these sectors as parts o a broader impact
investing industry, using the denition o industry applied by strategy guru Michael
Porter: a group o rms producing products that are close substitutes or each another.
Increasingly, investors are looking or the best ways to achieve nancial return and impact
and are eager to source deals in diverse settings such as micronance in rural India or com-
munity development in Los Angeles. At the same time, intermediaries initially developed
to serve a specic sector are proving valuable platorms across multiple impact investing
sectors. Actors who once saw themselves as engaging in dierent businesses are discov-
ering that they are part o a broader emerging industry that is lled with uncoordinated
innovation.
With coordinated eort and sucient investment in inrastructure, investing or
impact could move out o the phase o uncoordinated innovation and build the mar-
ketplace required or impact at scalepotentially during the next ve to 10 years.
Pha iduy elu
A Cca ta p iac i: Bd a maac
tda 5-10 a?
gw cc a
aa a
a c
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c
ac ac
ac
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bc
cazd
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iac
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aac c ad
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ac
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cc
CApturing the
vAlue o the
mArketplACe
mArketplACe
BuilDing
mAturity
Daa a
ac
a d
c c
D a
a w b
d
a d
Caaczd b ac
c xc a
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unCoorDinAteD
innovAtion
Over the next5-10 years, impac
investing could
grow to represen
about 1 percent o
estimated curren
assets under
management
about $500 billio
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i sca ad ea iac: A D Caaz a e id4
The growing,
global cadre
o leaders who
are committing
themselves and
their institutions
to this new style
o investing have
one belie incommon: they
insist that some
level o nancial
return and social
or environmental
impact can be
achieved together.
Beneath this
shared conviction,
however, many
dierences must
be conronted.
the uture o impACt investing
How this transition is traversedand how quicklywill determine the size and ultimate
impact this new domain o investing can and will have. The question or today is whether
the bar will be set high enoughwhether pioneering leaders will provide the talent,discipline, and resources that will be needed to create a coherent marketplace with high
standards or impact.
We know that the uture scale and value o impact investing will be threatened i any o the
ollowing risks materializes:
The risk that investing or impact will ultimately be had. Current challenges could become
persistent obstacles and insucient compensation or risk may result in lack o interest in impact
investing. The will to overcome the typical challenges acing a messy, new industry could disappear
i investors simply give up too soon.
The risk that investing or impact will ultimately be ay. Here, the denition o social and envi-
ronmental impact would turn out to be so loose and diluted as to be virtually meaningless. At best,
this outcome would turn this type o investing into a eel good rather than a do good exercise.
At worst, it would actually divert capital away rom philanthropy, decreasing the amount o resource
dedicated to conronting serious societal challenges. The hype about using markets to do good may
create a bubbleespecially i there is a signicant gap between expectations or nancial and social
returns and actual perormance, which may happen i the concept is sold ahead o demonstrated
social impact and/or economically viable deal fow. Poor thinking and sloppy execution might lead
to returns that are substantially below expectations.
The risk that the industry becomes cllaal daa in the global economic slowdown that took
hold during 2008. This crisis could be long and deep, and/or lead to dramatic changes in industry
structure and regulation that constrain investors appetite or the new style o investing. There is
a version o this downside view that simply delays the emergence o the industry until the next
economic cycle. There is also a trajectory o the nancial industry problems in which all the bets
on when this type o investing could emerge are called o. (At the same time, i the worst happens,
much else will change as well, including regulatory changes that could actually uel investing or
social and environmental impact.)
To surmount these risks, a growing global cadre o leaders will need to conront the para-
dox that investing or impact is both one thing and many things. On the one hand, this
ipac , wh k pz
cal al pac wh a f
acal u. These investors primarily aim
to generate social or environmental good, and are
oten willing to give up some nancial return i
they have to. Impact rst investors are typically
experimenting with diversiying their social change
approach, seeking to harness market mechanisms to
create impact.
acal , wh k pz acal u wh a f
cal al pac. They are typically commercial inves-
tors who seek out subsectors that oer market-rate returns while achieving
some social or environmental good. They may do this by integrating social and
environmental value drivers into investment decisions, by looking or outsized
returns in a way that leads them to create some social value (e.g., clean technol-
ogy), or in response to regulations or tax policy (e.g., the Green Funds Scheme in
the Netherlands or aordable housing in the U.S.).
iac ca b bad cad w bad a bjc:
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5the uture o impACt investing
s iac i
Yin-YAng DeALs
tagefa
careu
ta sca ad/ ea iac
high
none
none
impACtfloor
high
inAnCiAl loor
s
p-maxz
i
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inAnCiAL irstinvestorsoz aca w a ac f
imPACt irstinvestorsoz ca a acw a aca f
transition requires leaders to build the collective will that can
only come rom seeing this emerging industry as a whole,
with a common belie that some level o nancial return and
social/environmental impact can be achieved together.
On the other hand, the promise o impact investing also re-
quires us to understand the dierent reasons people engage
in impact investing. The marketplace map below takes as itsstarting place that people really do tend to begin rom either
impact or nancial returns rst; they are trained dierently,
speak dierent languages, and are willing to make dierent
sorts o tradeos.
Sometimes impact rst and nancial rst investors work to-
gether in what we call yin-yang dealsthat is, deals that
combine capital rom impact rst and nancial rst inves-
tors and sometimes add in philanthropy as well. This name
is derived rom the term in Chinese philosophy describing
two elements that are dierent and yet complementary when
put together. Yin-yang deal structures can enable deals that
could not happen without the blending o types o capital
with dierent requirements and motivations.
Today, organizing these types o deals eciently is dicult,
requiring unamiliar institutions and individuals to work to-
gether by overcoming the distrust typically elt between, or
example, private oundations and investment bankers. In the
uture, this yin-yang approach could developout o neces-
sity and synergywith a blending o the two types o capita
and philanthropy through seamless networks into sophisti-
cated investment structures that create the highest leverage
o social and nancial return. Increasing the scale and regu-
larity with which these deals occur will require mechanismsor capturing learning and institutionalizing relationships, so
that the eort put into creating one syndicate or deal struc-
ture can enable the next one, ve, or 10 similar deals to be
executed more seamlessly. More yin-yang deals may resul
rom the successul development o impact and nancial rst
investor markets.
Although each o these three segmentsimpact rst, nan-
cial rst, and yin yanghas inherent risks and limitations
each can grow and succeed at scale over the next decade
In the challenging economic climate post the 2008 marketmeltdown, impact rst investors may be most likely to stay
committed to this type o investing and seize the existing
opportunities. Mobilizing the substantial capital o nancia
rst investors will require developing deal structures that
give those investors condence in the likely nancial return
But over time any combination o these segments could lead
to the ulllment o the promise o impact investing.
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i sca ad ea iac: A D Caaz a e id6
Detailed
descriptions o
all the initiatives
to build a
marketplace or
impact investing
including
examples o where
these activities
are already getting
tractionare
included in the
complete report.
There is no substitute or the hard work o making investments and doing what it takes
to ensure that they succeed. Without that, nothing else matters. But the emerging impact
investing industry could remain stuck or a long time in the rst phase o its evolutionuncoordinated innovationunless concrete actions are taken to build a more coherent
marketplace. Thats the only way to remove barriers and mitigate risks across the potential
trajectories, both or individual segments and or the industry as a whole.
What concrete actions are needed? There is a classic chicken-and-egg problem o balanc-
ing the tension between pumping up supply versus pumping up demand. Although we
believe an initial ocus on improved intermediation will be important, ultimately both im-
proved supply and demand will be required. Investors, entrepreneurs, and philanthropists
all have an important part to play in providing the leadership, capital, and collaboration
necessary or success in this next phase.
th Pla makplac Buld
Increasing the amount o money and the social and environmental value o impact in-
vesting will require unlocking capital by developing ecient intermediation and by
developing inrastructure to acilitate transactions. These actions will be as essential to
securing the promise o this industry as they were or venture capital. As Sir Ronald Cohen,
a venture capital pioneer in the U.K., notes, It is true in the case o social investment as it
has proved to be in that o venture capital and private equity that the supply o money cre-
ates its own demand and an increased fow o capital is thereore the starting point.
Still, this simple parallel, while persuasive, is insucient when it comes to the challengesacing entrepreneurs building businesses or impact, especially in developing countries.
It takes time to develop proven, large, investable opportunities. So action will also be
required to address the imminent barrier o insucient absorptive capacity or invest-
ment capital by supporting the development o scalable, backable business models.
An ApproACh or ACCelerAting progress
We have identied a diverse and interrelated set o initiatives, all o which are within the marketplace-
building stage o industry development. They are grouped into three platorms based on the challenges
constraining impact investing:
Ulck La supply Capal by Buld ec idaEnable more investing or impact by building
the investment banks, clubs, unds, and products needed to acilitate existing interest.
Buld eabl iaucu h iduyBuild the ecosystem or impact investing, including common metrics,
language, and an impact investing network that can serve as a platorm or collective action such as lobbying or policy
change.
Dlp h Abp Capacy i CapalDevelop investment opportunities and ensure high-quality
deal fow by cultivating talented entrepreneurs and supporting the enabling environment or private sector innovation
and success in regions and sectors where investment can create impact.
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7An ApproACh or ACCelerAting progress
Cb Py ia Caalyz P
O the many important initiatives above, we highlight the ve that we believe together
have the greatest potential to catalyze the industry s development:
unloCk lAtent supply o CApitAl By BuilDing intermeDiAtion
Ca duy-d ud ha ca a bac hw add
pcc cal al u.These large unds would uncover and
aggregate outstanding investment opportunities that can serve as powerul examples o
how major social or environmental issues can be addressed. They can serve as beacons
and attract a wave o additional investors and ideas, much as the Apple initial public
oering catalyzed the venture capital industry. At the same time, these unds could
stimulate the markets development by attracting talented entrepreneurs to launch
businesses and intermediaries while consolidating capital and reducing transaction
costs associated with ragmented supply. The unds could also create platorms to seedand build the capacity o new und managers and to roll out impact metrics or stan-
dards in ways that reinorce the unds nancial objectives.
Forexample:A collection o investors commit $1 billion to an impact investing und,which attracts und managers, service providers, and entrepreneurs to the eld. This couldkick o a virtuous cycle as it becomes easier or additional investors to engage in impactinvesting, which in turn attracts more entrepreneurs and creates more business or inter-mediaries.
k ia Bd a maac iac i
unCoorDinAteD
innovAtion
CApturing the vAlue
o the mArketplACe
mArketplACe
BuilDing
mAturity
Ca: lACk o eiCient
intermeDiAtion
lACk o enABling
inrAstruCture
lACk o suiCient
ABsorptive CApACity
pa: uc la s
Caa b Bd
ec intermeDiAtion
Bd eab
inrAstruCture
id
D
ABsorptive CApACity
i Caa
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n. ia ca ad aac cc ad ac
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i sca ad ea iac: A D Caaz a e id8
Plac ubaal, k-ak capal caalyc ac ucu. Fund-
ing creative models at sucient scale is likely to require some yin-yang deals that
combine impact rst and nancial rst capital. Without some catalytic, risk-taking
unding rom impact rst investors, the deals may not provide suciently attractive
returns or commercial investors; without commercial investors, it may be more chal-
lenging to invest the volume o unds required to make a dierence. As David Zellner
o the Chicago-based General Board o Pensions and Health Benets explains, TheGeneral Board will only lend unds or social impact investments at market rates. We
are oten presented with investment opportunities that require below-market unds or
them to be viable. However, many projects are unable to secure sot money commit-
ments. Hence, we are unable to participate in these types o projects. Unortunately,
these unusual mezzanine structures are likely to meet increased skepticism rom inves-
tors because o the complicated structures that have contributed to the nancial crisis.
But someone needs to go rst. Impact rst investors are most likely to act i it will
ultimately produce substantial social or environmental benets.
Forexample:Create a concessionary capital und that can nimbly match its unds with
more commercially oriented capital. The und might ocus on providing secondary nanc-ing to allow primary investors to exit while leveraging their expertise in deal sourcing.
BuilD enABling inrAstruCture or the inDustry
s duy adad cal au. Developing metrics will be an
essential way to draw attention to the results o an eective model developed by a und
or unds. Proo o impact is going to get a lot o people excited about investing or im-
pactbecause it will demonstrate that better, larger, dierent, more sustainable social
impact is achievable. As a portolio manager at a major U.S. pension und explains:
Measurement o ancillary benets is going to be an ongoing issue in impact invest-
ment. The industry needs to capture and demonstrate these benets in order to attract
more capital.
Forexample: Two sets o initiatives would help achieve this goal: developing rigorousmetrics and a standard-setting body to implement them. For impact rst investors, themost important priority is to develop rigorous metrics or assessing the relative socialand environmental impact o investments and portolios within and across the sectorsand geographies that matter to them. This would allow them to assess the results rominvestments that may be below market rate. Understanding this potential tradeo will beespecially important to institutional investors. An additional step would be to establish astandard-setting body that would help create a threshold or what would be consideredan impact investment. A basic rating system would help organize the market by making itpossible to compare outcomes o investments. It would also help protect the credibilityand reputation o the eld rom conventional investments being promoted as impact
investments. There is much to be learned rom the standards-setting activities in sociallyresponsible investing, including the ramework o the Global Reporting Initiative and theCeres Principles.
Lbby pcc plcy/ulay cha. Policy change has been a common
ingredient in the evolution o many other industries, including venture capital and pri-
vate equity, and will be an important way to create incentives to draw an even broader
range o investors to engage in investing or impact. As Kyle Johnson, an investment
p
ia
t
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ac a:
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ca a bac w add
cc ca
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pac baa,-a caa
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9An ApproACh or ACCelerAting progress
A d
, wa
ca w d cd w.
t ac
wa c
b a
ad b rc
da 200
advisor at Boston-based Cambridge Associates, describes, I cannot underline how
important the policy piece is in driving change. . . . When market behaviors are not
aligned with positive social and environmental outcomes, a key question to ask is
Why? I the answer is that there is some orm o coercion present in the market,
such as the externalization o social or environmental costs, then working to change
public policies to help realign market incentive structures is a really important ap-
proach to consider. Substantive change oten begins in a crisis, and the nancialcrisis may create just such an historic opportunity. Sweeping legislation is coming in
the orm o scal stimulus and nancial oversight. It can be done well or poorly, in
ways that encourage investing or impact or discourage it.
Forexample:Policy mechanisms could include anything rom a reduced capital gainstax on impact investing products to scrutiny and clarication o the meaning o du-ciary duty or the development o a und to catalyze impact investments similar to theCommunity Reinvestment Act, but or a broader set o social and environmental issues.Governments could also leverage their role as large-scale purchasers by providing an-chor demand or promising enterprises, enabling them to prove and scale their businessmodels.
Dlp a pac wk. For these initiatives to come to ruition,the creation o a network or the industry will be essential to developing the relation-
ships, tools, inrastructure, and advocacy required. The network can enable impact
investors to share experiences, pursue investment opportunities, and orge partner-
ships, and can serve as a source o inormation or organizations committed to eld
building. The network would be particularly valuable or deals that mix impact rst
and nancial rst investors.
Forexample: Investors build a global network or the impact investing eld that servesas a hub or collaboration and a platorm or setting clear denitions and standards.Investors develop relationships or sharing inormation, co-in-vesting, and engaging in new projects. The network also providesthe community with a common voice in policy advocacy eorts.
Depending on the specic geography and sector, success will require
some combination o these ve high-priority initiatives as well as
the other initiatives listed on page 7and undoubtedly others as
well. Some actions will come to ruition quickly and help alleviate
constraints in the marketplace, while others will lay the groundwork
or the uture structural shits needed to broaden the market and
transorm the ecosystem to support a new kind o investing.
Together, these actions can help guard against the risk that in-
vesting or impact might become too easyenabling rigor,
discipline, and high standards by creating, or example, metrics
that dene what qualies as impact investing. They can also help
address the risk that this new style o investing stalls because it
remains too hardby building the necessary intermediation that
can help avoid hype and sloppy execution.
A tw Bab:t C ud
Socially Responsible Investing
Blended Value
Impact Investing
Mission-Driven Investing
Mission-Related Investing
Triple-Bottom Line
Social Investing
Values-Based Investing
Program Related Investing
Sustainable and Responsible Investing
Responsible Investing
Ethical Investing
Environmental, Social, and GovernanceScreening
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i sca ad ea iac: A D Caaz a e id10
Wha rqud succ:Ladhp, Cda, ad Capalza
Taken together, these initiatives have the potential to help build the marketplace and ensure
the promise o impact investing. But the initiatives outlined will only become a reality i
leadersinvestors, entrepreneurs, and philanthropistsemerge to advance them. As
Chris Foy o Sainsbury Family Investments explains, Impact investors need a collective,
legitimate voice to advocate or this type o investing and recruit other investors to orient
themselves toward impact. It is also important to have pathnders who demonstrate the
viability o this approach so other investors understand its potential.
Actions need to be taken to build the marketplace as a whole, seeing investing or impact
as one industry with a common value chain and clear, shared challenges, regardless o
geography or sector. At the same time, actions also need to ocus on enabling the distinct
segments o impact rst, nancial rst, and yin-yang investors to develop successully in
their dierent regions and sectors.
Leaders who understand what is at stake will need to consider how others can leverage
the time and eort they have put in. These pioneers will come rom many places, do di-
erent things, and use dierent types o capital; they will include large-scale amily oces,
institutional investors, pension unds, investment banks, wealth managers, and private
oundations.These leaders have an opportunity to take a more active role in driving the
evolution o investing or impact, as they can steer billions o dollars o capital, support
collective action, command the authority to set standards, and back new businesses and
unds that can ll in the gaps in the impact investing ecosystem. And those who are just
getting started will need to look to the leaders who have gured it out to see what can be
learned rom their experience so they dont reinvent the wheel.
These initiatives will also need to be well executed with a range o coordination and capi-
talization.
CdaMany o the initiatives we outline will require a signicant level o
coordination or collaboration. Success will require a fexible philosophy because col-
laboration may require a bit o compromise. It will not be possible to build a market
i everything investors want is idiosyncratic and they all insist on getting exactly what
they want.
CapalzaSuccess will require people who will put their money into impact
investments as well as people and institutions who will help capitalize the industry
through intermediary and inrastructure development.
The table that ollows maps the initiatives based on the minimum amount o coordination
and capitalization required or them to be eective broadly. In the lower let-hand corner are
immediate entrepreneurial opportunities that require less coordination and can be unded
through short-term prot or medium-term development unding. In the upper right-hand
corner are initiatives that require both subsidy and industry level coordinationnotably,
this is where three o the ve high priority initiatives all. This mapping can help actors
consider what action they want to lead or participate in. For example, philanthropy may
A group o
investors is
starting the
Global Impact
Investing Network
or leaders towork collectively
toward the
maturation o the
industry.
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have a particularly important role to play in the upper right-hand corner, building some o
the inrastructure that will require a high degree o subsidy and coordination.
As this table indicates and the history o other industries teaches, potential leaders will
need to do more than just their day jobs in order to overcome current challenges and
mitigate uture risks. Many entrepreneurial eorts operating in parallel, without some
coordination, run the risk o re-creating the very problems o ragmentation, duplication,
and underleverage that they are attempting to solve. Value could be let on the table, with
a greater likelihood that the industry will succumb to the challenges and risks we have
outlined.
Investors, entrepreneurs, and philanthropists thereore all have an important part to
play in providing the leadership, capital, and collaboration needed to catalyze invest-
ing or impact. The industry will need stewards to marshal the collective action required
to develop public goods inrastructure and to support those initiatives that may require
coordination and at least an initial subsidy.
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i sca ad ea iac: A D Caaz a e id12
A vision o what
impact investing
could look like
as a mature
industryand
some potential
paths to the
utureare
described in the
complete report.
Building an industry is challenging in any context, much less in an economic climate that
has evoked comparison to the Great Depression. Nevertheless, we are optimistic that some
investors will keep insisting that their money be used to create social and environmentalimpact. The crisis in the nancial markets could slow these investors down, or it could
speed them updepending on how governments and intermediaries respond. But it wont
stop them. The visible need is too great, as is the impatience with the models o the past
that orced those with money to choose only between looking ater others (philanthropy)
or looking ater themselves (investing to grow capital).
Our research has led us to conclude that the best way to guard against these risks is to
be explicit about them and then to take action to build the inrastructure and practices
that can enable rigor, discipline, and high standards. Investors, entrepreneurs, and phi-
lanthropists all have an important part to play in providing the leadership, capital, and
coordination needed to seize todays opportunities. Through eective execution o thestrategies in this report, the groundwork o intermediation and inrastructure could be laid
to mitigate the risks that impact investing becomes too hard or too easy. I all this happens
soon, within the next ve to 10 years, the industry could start to be recognized as a coherent
whole, beyond the important geographical and sectoral segments that are its components.
Because this new style o investing is diverse and in a nascent stage o development, there
is no way to tell exactly how big it really is, let alone how big it could become. But given
the size o todays existing screened social investments, its certainly plausible that in the
next ve to 10 years investing or impact could grow to represent 1 percent o global assets
under management in 2008. That would create a market o about $500 billion. Such scale
would create an important supplement to philanthropy, nearly doubling the amount given
away in the U.S. alone today (global gures are not available).
Even i this uture comes to pass, and investing or impact achieves its ull potential, it
will not become a substitute or philanthropy or government, nor should it be seen as one.
Rather, the market will become ever more sophisticated and precise about which unding
vehicle best suits which problem. Success will mean creating a meaningul and viable alter-
native and complement to existing approaches.
Investing or impact can have a powerul new role in the world. With commitment and
rigorous action the perils o this moment can be avoided and the industr ys promise can
be realized, applying the wealth o our era to address some o our most troubling social
and environmental challenges.
WhAts At stAke: A CAll to ACtion
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