Looking Back, Looking Ahead: Impact Investing at a Crossroads

In the earliest days of a formal impact investing industry, the concept itself was radical.

I vividly recall sitting in an office with my mentor and former boss, shortly before the Global Impact Investing Network officially launched in 2009. She said to me and the GIIN’s founding board chair: ‘Look guys, there are about a hundred ways this could go wrong – and maybe one way it goes right.’ It was not particularly optimistic, but it was honest and captured the challenge before us.

Now, more than a decade later, we still cannot definitively say whether it has ‘gone right,’ but we do know that the industry has made huge progress. It is equally clear that impact investing cannot tackle the world’s most pressing challenges in isolation: government, philanthropy, and business all must work together in new ways.

The early years of a formal industry

Long before the term ‘impact investing’ was formally coined in 2007, there were investors who already operated in ways that met the definition for the new term – that is, they intentionally invested to generate positive, measurable social or environmental benefits, alongside financial return. Community development investors in the United States, sustainable agriculture investors across Europe, and microfinance pioneers in many emerging markets are but a few examples of those trailblazers. They were doing the hard work of investing to benefit communities and the environment against all the counter-currents of the financial system.

And yet, impact investing pioneers saw a far larger opportunity for a cohesive industry. Early visionaries recognized the need to move vastly more capital toward projects that had a positive impact on communities and the planet. More fundamentally, they saw the need to build a model of investing that prioritized impact.

That notion stood in contrast to the conventional thinking of the time. In those days, when the world was still recovering from the 2008 financial crisis, most mainstream investors were indifferent to positive impact. Some believed their financial interests or fiduciary duty conflicted with it, and some were just ideologically opposed to investors considering anything but their own financial profit.

With the help of its early supporters, the Global Impact Investing Network opened its doors with just more than 20 members. Over the ten years that followed, impact investing grew in powerful ways. The total value of assets allocated to impact investments climbed dramatically. The investor base became far more diverse, spreading across six continents. The industry was increasingly legitimized by both governments and by the media, who spread the word to broader audiences.

All of that growth has added up to substantial progress. Impact investing is no longer radical. Indeed, by all the metrics envisioned during the GIIN’s earliest days, the impact investing industry has become a tremendous success.

Success in a failing system

And yet, as we review a decade-plus of industry progress, we must resist any temptation to declare victory. Despite the growth of impact investing, the climate crisis has only worsened over the past ten-plus years. Inequality has deepened. Global leaders have made insufficient progress in addressing racial and gender inequities. And now, the COVID pandemic is exacerbating nearly all our major global challenges.

So, we arrive at a critical question: What does success for impact investing mean in the context of a global economic system failing both people and planet?

The future of impact investing: Two paths

As I consider that question and the future of impact investing, I see two possible paths ahead.

On one path, impact investing loses momentum after this initial surge of interest. Funding still flows, and investors continue to make deals, but growth slows. The approach remains niche or is folded into the status quo – a footnote in the history of the financial markets. In this case, investors would still create pockets of impact, but they would not generate large-scale, much-needed progress.

The other path — the one the industry needs to aim for — is a leap forward. On this path, impact investors succeed in creating a better future for all. The industry would help to fill the financing gaps for the United Nations’ Sustainable Development Goals and the Paris Climate Accords. As investor demand increases, all investments would be expected to account for their social and environmental impact, alongside their financial return. In this second possibility, impact investors would help establish an entirely new way of doing business, contributing to a sustainable, inclusive, and regenerative system.

New alignment for our ‘next normal’

Right now, impact investing is at this pivotal moment. We cannot be sure if it will, in fact, ‘go right’ in the ways my old boss might have hoped.

But even if it does, impact investing alone is not sufficient. In order to create the more sustainable, more inclusive ‘next normal’ our world requires, government, philanthropy, and business must all reorient toward building an impact economy – an economy in which social and environmental impact will take its rightful place alongside financial returns. Real-world outcomes must be centred in all investing decisions, regardless of who is making them.

To some, economic transformation that fundamental might sound radical. But as the impact investing industry illustrates, some of the best ideas do sound radical at first.

Amit Bouri is the Co-Founder & CEO of the Global Impact Investing Network (GIIN).

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