It has been 10 years since the term “impact investing” was officially coined at the Rockefeller Foundation’s Bellagio Center. The past decade has seen an industry that started with a few forward-thinking risk-takers, then grew to attract mainstream investors and philanthropists. At Omidyar Network, we are both an investor—with nearly $500 million in impact investments made to date—and a field-building organization, so we are delighted by the increasing attention investors are paying to impact investing. However, we also recognize that the amount of capital these groups are currently deploying to impact investing remains a remarkably small percentage of the overall global investment industry.
In this time of increased political, environmental, and economic uncertainty, it is more important than ever that the impact investing industry continue to grow, which means both increasing the amount of capital in the field, and moving more people and organizations from awareness to action. To effect change at the pace and scale the world needs today, we must look beyond traditional philanthropy to include market forces, which can play a powerful role in tackling societies most intractable problems. At Omidyar Network, we are focusing on three different approaches we hope will move the impact investing needle this year: segmenting the field to better align expectations of risk, returns, and impact; increasing the rate of adoption with influential stakeholders; and strengthening our work in the United States.
Segmenting the Field: Aligning Expectations of Risk, Returns, and Impact
Impact investors need better tools to align their investments with their expectations along three axes: the level of risk, financial returns, and social impact. The term impact investing currently encompasses an incredibly diverse array of strategies across asset classes, geographies, sectors, and goals. Without clarity around the available options—and the social and financial returns they yield—the industry is at great risk of overpromising and under-delivering both financially and in terms of social impact. At the nascent stage of the movement’s lifecycle, this could significantly impede long-term success by wrongly implying it is not a viable strategy.
The work of organizations like Tideline and Bridges Impact+, both of which provide advisory services to organizations and institutions looking to maximize impact, have started to push us in the right direction, especially in laying out different frameworks by which to evaluate impact so that investors can make more informed decisions. Tideline’s Navigating Impact Investing project was an important first step in identifying the need to categorize the many ways impact investments can have impact, and we look forward to the upcoming results from Bridges about how we as an industry can work together and agree on how best to measure and manage performance.
Going forward, we will continue support efforts to segment impact investing opportunities and will work closely with other industry leaders who are echoing this call. We also invite others in the industry to share how they are working to align their expectations and investments, as we recently did in our recent article, “Across the Returns Continuum.”
Increasing the Rate of Adoption
We are also actively working to increase the rate of adoption, particularly among ultra-high net worth individuals (those with at least $30 million in liquid financial assets). With tremendous resources, flexibility, and in many cases a greater appetite for risk than traditional capital sources such as financial institutions or even foundations, ultra-high net worth individuals have emerged as important advocates for impact investing. They also deepen the credibility of the field, particularly in their ability to signal client demand to advisory institutions and attract press—an important step toward the longer-term process of democratizing impact investing.
To help these individuals understand how best to engage with impact investing, we are prioritizing our pro-bono counsel and services, including helping potential investors better understand the impact investing landscape, potential structures for their organizations, and how they might more closely align their values with their capital. We are proud supporters of important action networks such as Pymwymic, the ImPact, and Toniic, which provide ultra-high net worth individuals the opportunity to learn from each other and, in the case of Pymwymic, identify investment opportunities. We have been particularly surprised at the critical role the next generation of wealth holders—those anticipated to inherit $30 trillion in wealth over the next 30 years—has played in increasing the amount of capital flowing into and bringing attention to impact investing. We are very optimistic about the influence they are having in convincing their own families to invest in this way. We believe leaders such as Liesel Pritzker Simmons, Justin Rockefeller, Howard Buffet, and many others will continue to have a tremendous impact on the field by both committing their personal capital to impact investing and encouraging others to do the same.
Strengthening our Work in the United States
Finally, while we remain committed in our support of social enterprises in emerging markets, we are also doubling down on our efforts in the United States, particularly in the areas of governance and citizen engagement and education. We are taking a close look at how we might help narrow the growing divide in our country. We are particularly excited about our work in civic technology, which offers a promising solution to the lack of trust citizens have in their governments. Civic tech provides an opportunity for citizens to connect with each other, express concerns to their governments, and more easily access public goods and services. For example, we invested in SeeClickFix, which empowers citizens, community organizations, and governments to better care for neighborhoods by providing new tools for citizens to engage with their governments—and significantly, for governments to act more transparently. We also support Unite US, a technology platform reinventing the delivery of health, employment, and human services in an effort to better connect government agencies, community organizations, and consumers.
It is exciting to see how many foundations are really stepping up to the plate with impact investing and leading in all kinds of innovative ways. We continue to learn from our peers in this space and believe that this is a critical moment for us—and our colleagues—to reinvest ourselves in this work.
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Read more stories by Matt Bannick & Paula Goldman.