Articles about impact investing have been flooding the internet and everyone seems to have a different definition. The Global Impact Investing Network (GIIN), defines impact investments as ” investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.” They emphasize that these investments can be made in both emerging and developed markets and can expect a wide range of returns (as long as they don’t exceed market rate). The Mulago Foundation provides a slightly different definition: “impact investing is the practice of putting money—loans or equity—into impact-focused organizations, while expecting less than a market rate of return.” JP Morgan views impact investing as “creating positive impact beyond financial returns” and “distinguishes impact investments from the more mature field of socially responsible investments (“SRI”), which generally seek to minimize negative impact rather than proactively create positive social or environmental benefit.”
Although these definitions are varied and somewhat vague,
“The glue that binds those who operate in the impact investing industry is the shared conviction that creative investments can play a crucial part in addressing social and environmental challenges. This investment interest is sparking the emergence of a new industry that operates in the largely uncharted area between philanthropy and a singular focus on profit-maximization.” 
As inequality across the globe increases, impact investing is becoming a very important tool to bridge the gap between donor-reliant philanthropy and the estimated $100 trillion in opportunity currently in for-profit capital markets. However, impact investing fills more than just the funding gap. Jacqueline Novogratz – founder of the pioneer impact investment fund, the Acumen Fund – writes “Philanthropy alone lacks the feedback mechanisms of markets, which are the best listening devices we have; and yet markets alone too easily leave the most vulnerable behind”.
Impact investing combines the socially conscious values and desire to “help the poor” traditionally held by non-profit organizations with the competitive nature and demand-drive of the market. It eliminates the need for entire departments dedicated to grant-writing and outlandish efforts to keep donors happy. With impact investments in place of grants and donations, socially-focused organizations can focus all of their talents and resources on improving and expanding their mission. The social consciousness of impact investors also allows for-profit ventures to use slightly more expensive inputs that are significantly better for the environment and/or the people they are serving. For example, Tegu, a social business that produces high-quality wooden blocks, uses wood that has been sustainably forested in Tegucigalpa, Honduras. Cheaper wood of equal quality could be used, but the founders of Tegu are willing to accept a slightly lower profit margin in return for the knowledge that they are supporting and promoting sustainable forestry. Likewise, impact investors would choose to invest in Tegu over a more profitable wooden-block company that harms the environment.
As the industry continues to develop, expect to see more definitions of impact investing emerge, not less. One of the shortcomings of current development projects is the strict definitions and metrics required by donors. The versatility of impact investing is one of its strongest attributes because it allows for investments over a wide range of projects with flexible terms. The problems impact investors are looking to solve are not clear cut or easy to define. Therefore, the definition and terms of impact investing should be versatile and creative in order to finance the best solutions and create maximum impact.
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