Impact investing puts capital into companies, funds or projects with the aim of doing good as well as earning a return. The Global Impact Investing Network (GIIN) defines impact investments as those made to generate positive, measurable social or environmental impact alongside a financial return. It names four core characteristics: an intention to contribute to measurable benefits, the use of evidence and impact data in designing investments, managing toward the impact intended, and sharing lessons so the field can grow.
Origins and size
The term was coined at a Rockefeller Foundation gathering at its Bellagio Center in Italy, which Wharton Magazine dates to 2007. The convening led to the Global Impact Investing Network, whose formation the foundation announced in 2009. In its 2024 market sizing, the GIIN estimated that more than 3,900 organizations managed about $1.57 trillion in impact investments worldwide.
Returns
The GIIN says impact investments can target anything from below-market to above-market financial returns. Some investors accept less money back in exchange for more good. Most of the investors the GIIN has surveyed target risk-adjusted, market-rate returns.
Foundations have a tool of their own. A program-related investment, in IRS terms, is one made primarily for charitable purposes, where income is not a significant purpose. The IRS’s examples include low-interest loans to needy students and high-risk investments in nonprofit low-income housing.
The counterfactual question
The hardest question in impact investing is the one at the heart of counterfactual impact: would the good have happened anyway? If an investment earns full market returns, an ordinary investor might have made it too, and the impact investor’s money changed little. If it accepts lower returns, or takes risks others won’t, it is more likely to have made a difference. Measured outcomes matter too: an investment that reports outputs, such as loans made, has not yet shown outcomes, such as incomes raised.
In the charity system
Impact investing sits beside the charity system rather than inside it, but it competes for the same intentions. A foundation choosing between a grant and an investment, or a donor between a gift and an impact fund, is making a depth and counterfactual decision. Charitology describes both kinds of capital with the same questions from the Giver’s Checklist.