Impact investing has a business model problem.

There is no shortage of well-intentioned practitioners. However, who actually pays for the social impact in impact investing?

The current impact investing framework relies on wealth inequities in order to exist and we must re-examine the business model.

The traditional sources of impact capital  —  foundations and accredited investors seeking to "do well by doing good"  —  expect positive financial and social returns without regard for how their wealth has been created, multiplied, and contributes to growing income and wealth inequality. Two hundred fifty years of slavery, ninety years of Jim Crow, sixty years of separate but equal, and thirty-five years of racist housing policy have led to investment criteria and practices that inherently exclude and price out entrepreneurs and communities impact investors hope to support.

The capital intermediaries  —  who provide the pipeline of impact investments  —  are incentivized to make "safe" investments that will produce enough returns to sustain themselves and repay investors with market rate returns, all while reinforcing the narrative of doing well by doing good.

This may help investors sleep at night, but it doesn’t change free market investing dynamics. I have witnessed high impact deals get passed over because they do not meet the criteria or the entrepreneurs simply cannot afford the higher cost of capital applied because they are considered high risk by traditional measures. Intermediaries that avoid "riskier deals" but maintain positive return records are rewarded with additional capital and resources, further reinforcing structural inequality.

Read the full article about the stakeholders paying for social impact by Nina Sol Robinson at BALLE Views.