Parsing Impact Investing’s Big Tent
By Lauren Booker and Paula Goldman
Note: These are excerpts from a the full piece which can be found on the Stanford Social Innovation Review site.
As the momentum of impact investing builds, the field attracts new participants that believe in its potential as a powerful tool for good. While these are exciting developments, the lack of proper taxonomy—or classification—poses a significant risk to the movement, especially given recent growth.
By “clustering” major fund theses along three variables—risk, return, and most importantly, intended type of impact—we can be far more nuanced about different prospects for investors who are trying to solve a diversity of problems.
This would yield multiple benefits. For one, helping investors better understand the space would accelerate their assessment of where they can “play,” leading to more-efficient, optimized capital allocation aligned with varying investor risk, return, and impact expectations. This would likely trigger a substantial uptick in blended capital models such as alternative fund structures, social impact bonds, and innovative financial products yet to be designed. It could also spur an exponential increase in early-stage ventures that can access adequate funds to support them across each stage of the capital spectrum and achieve scale by ultimately tapping commercial markets.
At Omidyar Network, we’re actively working to promote next steps in segmentation and supporting related returns-data research efforts to help inform this thinking. While it’s still in the early days, the recent groundswell of impact-investing news and activity signifies a critical juncture in the field’s trajectory.
Read more here.