Centennials, under the age of 21, and Millennials, ages 22 to 37, are particularly interested in impact investment, so it makes sense for marketers to understand what this relatively new investment field is and how it works.


Impact investment is described and differentiated from other forms of investment by three guiding principles:

  1. The intention to tackle social or environmental challenges (i.e. the impact or intentionality): impact investors aim to achieve a positive impact on society and/or the environment.
  2. The expectation of a financial return: impact investors expect to earn a financial return on the capital invested, below the prevailing market rate, at the market rate or even above it.
  3. A commitment to measuring and reporting on the intended social and environmental impact: impact investors commit to the measurement of social and environmental impact performance using standardized metrics.

Impact investors have traditionally challenged the view that positive development can only be guided and reached by social assistance or philanthropy. On the contrary, the field of impact investment asserts that business and investment are important drivers for achieving more inclusive and sustainable societies and a healthier and more ecologically sound environment.

Therefore, impact investors aim to demonstrate that investment can achieve both a positive (social and/or environmental) impact and a financial return (or, at minimum, a return of capital). Impact investment is not limited to a specific asset class or sector. It includes fixed income, debt, venture capital, private equity and social and development impact bonds.


Impact investment is appropriate where private capital can address social and/or environmental challenges in innovative ways, while still pursuing commercial viability. Impact investment can address public failures, but it is by definition not a solution when there is no viable business opportunity. Impact investment is not a substitute for the provision of social services or philanthropy. Rather, it aims to complement and broaden the range of available options to promote sustainable development, drive innovation and achieve a positive social and environmental impact. Impact investors can also pave the way for larger public interventions, by underwriting risks that cannot be taken up by public intuitions in the first instance.

Private equity and private debt are the most common impact products, with the latter taking the largest share in terms of capital invested. Impact investors often–but not exclusively–invest in innovative businesses and enterprises in sectors such as: sustainable agriculture; affordable housing; holistic healthcare; safe, renewable energy; clean technology; and financial services for low income populations.

A few examples include:

  • A fund investing in microfinance in Africa and Asia.
  • A non-profit financial institution providing finance to farmers in Latin America.
  • A platform that allows individual investors to make loans to women in developing markets to access clean energy.
  • A foundation endowment’s investment policy focusing on sustainable food production.
  • An individual investment in a company that provides healthy and nutritious school lunches.

Impact investors include endowments, high net worth individuals, foundations (e.g. Bill & Melinda Gates FoundationGatsby Charitable Foundation), pension funds, institutional investors (e.g. JP MorganSouth Africa PIC) and retail investors that invest capital directly in social enterprises or in impact investment funds (e.g. Acumen FundBridges VenturesElevar EquityAriya Capital) and instruments (e.g. Social Impact Bonds). Impact capital has been raised mostly from banks, pension funds, high net worth individuals, and Development Finance Institutions (DFIs).

In relation to investment recipients, impact investments can be directed both to for-profit and non-profit ventures, as long as they can produce a financial return. A number of intermediaries can connect impact investors with these impact-driven enterprises with tailored services, such as research, fundraising, certification, evaluation and impact measurement, business incubation, business acceleration and legal services. Enablers, such as DFIs and some government agencies, provide the enabling environment in which the market transactions can materialize, and, in certain instances, also offer direct incentives and co-financing.

The possibility for a venture to incorporate as a benefit corporations (B-corporations) in the many states in the US is an example of supportive legislation. This form of incorporation allows a business to balance its fiduciary duties to its shareholders with its commitment to produce positive social and/or environmental impacts for its stakeholders and include both these commitments in its corporate charter. B-corporations can also be privately certified by B-Labs in addition to the legal registration.

As the field of impact investment matures, it is expected that the financial market will establish benchmarks for impact investment based on previous attempts to develop Environmental, Social and Governance (ESG) market indices, e.g. the S&P Environmental & Socially Responsible Indices, which tracks companies that meet certain environmental and social sustainability criteria, or the MSCI Low Carbon Indices, which focuses on low carbon businesses. DFIs (e.g. the International Finance Corporation, the African Development Bank, and the European Investment Bank) have spearheaded this movement by developing performance standards and often interacting with impact investors through blended finance and risk-sharing formulas. 


The Stakeholders involved in impact investing include:

  • The impact investors: investors who provide the capital, including: individual investors; high net worth individuals; foundations; DFIs; and a wide range of institutional investors such as pension funds and insurance companies.
  • The investment recipients: for-profit enterprises and non-profit ventures that, along with running successful and, in the case of for-profit ventures, profitable businesses, are able to generate measurable social and environmental impacts. Investment recipients include: social enterprises; multinational spin-offs; microfinance institutions; small and medium-size enterprises (SMEs); and cooperatives, among other forms. The term benefit corporation (or B-corporations) has been introduced in Europe and the US, while the term impact-driven organizations had been used in G20 discussions.
  • The intermediaries: organizations that link investors, investment recipients and stakeholders providing them with innovative solutions and services. They can also facilitate the development of structured financial products and help to reduce the costs of impact investing. They provide advice as well as help in structuring deals and in managing funds. Intermediaries can be commercial banks, investment banks, independent financial advisors, brokers, dealers, international organizations, consulting firms, among other organizational forms.
  • Enablers: governments can help by creating an enabling regulatory environment and by the provision of direct or direct incentives. The cost of capital can be reduced with tax relief, guarantees or subsidies aligned with government programs and priorities. Regulations can be enacted to recognize impact investors (e.g. European Social Entrepreneurship Funds in the European Union), encourage transparency, produce and share information, and establish peer working groups. Besides governments, international organizations, DFIs, and development agencies can also play a supporting role and enter into impact investment deals with co-financing or credit enhancement.
  • Beneficiaries: stakeholders that benefit from the investment through improved social and environmental conditions.

Investment Minimums and Costs

The specific project and business model of an impact investment recipient determines the investment requirement along with the relevant market size, maturity and other factors such as human capital or political and commercial risks. While larger companies may require financing of US$10 million or more, SMEs tend to require between US$25,000 and US$2 million. The cost structure and amount are also linked to the target investor and the asset class of the financial product. According to UNDP, deals in Africa vary from US$50,000 to a few million in the case of early stage impact funds and foundations, and up to US$200 million in the case of private equity funds and institutional investors. Data from the GIIN Impact Base show that deals tend to be larger in developed markets than in emerging markets. The median value of an impact investment deal as reported by GIIN is US$ 2.8 million. This includes a range of non-profits at the lower end of the spectrum with US $1.8 million deals, to insurance companies with deals in excess of US$ 44 million.

While impact investors have diverse expectations about financial returns, according to GIIN, most prefer to operate at market rates. What impact investment often does is thus to expand access to capital, even when the investment positions are high risk. Despite the preference for market rates, about 40 percent of impact investors are willing to accept a return on investment that is lower than the market rate. The pooled internal rate of return for the Impact Investing Benchmark is 6.3 percent (compared with a commercial benchmark of 8.6 percent) and higher in emerging markets (7.7 percent) than in developed markets (4.7 percent).

While aggregated data provide little evidence of additional costs, impact investment might result in short term higher-cost transactions compared with traditional investment because of to the implementation of rigorous social and environmental reporting requirements and the conduct of extra due diligence processes.  

Volume of Investment

The volume of impact investment cannot be officially recorded due to the currently somewhat imprecise definition of the term, but there are estimates. The Global Impact Investing Network (GIIN) estimates a market of US$114 billion in impact investing assets, of which US$22.1 billion committed in 2016. The expected growth in commitment in 2017 is 25.9 percent. The supply of impact capital is expected to rise but, as yet, impact investment’s share in global financial markets is estimated to be at around only 0.2 percent of global wealth. If this share rises to 2 percent, it could mean over US$2 trillion invested in impact-driven assets.

Larger definitions of sustainable or responsible investment (including ESG (investment managers applying environment, social, and governance standards) encompass an estimated total of US$21.4 trillion. Finally, over 1,500 asset managers, with combined assets of over US$62 trillion, have signed on to the six United Nations Principles for Responsible Investment.

Impact investment has also become widespread across the globe. A GIIN Investor Impact Survey reported that 40 percent of investment was in U.S. & Canada, 14 percent in Europe, 10 percent in Sub-Saharan Africa, 9 percent in Latin America. Overall, surveyed investors plan to increase funds proportionally more in developing and emerging markets like Sub-Saharan Africa and Latin America than in any other geographical region. Several leading financial firms have also entered the market in recent years with the creation of units or platforms dedicated to impact investment, including BlackRock and Goldman Sachs.

There are patterns connected to the impact’s theme or sector: whereas one-third of socially-focused impact funds expect below market returns, environmentally-focused funds overwhelmingly expect market rate returns. On average impact investment in the environment is also found to be as much as five times larger in volume than in social sectors. According to the last GIIN survey, microfinance, energy, housing, and other financial services (excluding microfinance) attract the greatest allocations. Among environmental themes, the focus is on renewable energy, energy efficiency, and clean technology.

The trends toward impact investment in the supply and management of capital are supported by polls covering the preference of the Millennials as new job-seekers or investors. Many Centennials and Millennials believe that the number one purpose of business is to benefit society and they want to work for a business pursuing ethical practices. Another survey reports that wealthy millennials are almost twice as likely as Gen X to regard their investments as a way to express social, political, or environmental values. These millennials – i.e. those born after 1980 and the first generation to come of age in the new millennium – will soon experience an unusual intergenerational wealth transfer that has been estimated at US$41 trillion in the United States alone, thus creating additional expectations for a growing number of impact investors.

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