Giving Compass' Take:

• The founder of Transform Finance, Andrea Armeni, discusses the nature of impact investing and the types of projects that are successful. 

• Why is impact investing a good alternative to philanthropy in general? What are the key elements of impact investing that make it different from philanthropy? Armeni focuses on community impact when discussing this issue. Why is engagement such a high priority for impact investing to work?

• Read how impact investing is becoming more mainstream for investors. 

Impact investment is often seen as a panacea to the challenges of aid and philanthropy, driving capital to socially positive projects that would otherwise not be financed. As the field matures, however, practitioners are starting to recognize some of its challenges.

Flows of capital – from World Bank-sponsored megaprojects to neighborhood redevelopments – are not always inherently positive: they can both help and harm communities. For instance,  Wind farms can add precious resources through local ownership, or they may steal indigenous lands. Microfinance can launch people’s livelihoods, or place them in a cycle of debt. Job creation efforts can strengthen communities or keep them in employed poverty.

There is potential for impact investing to turn finance into a real force for transformative social change, rather than just offering incremental solutions at the margin. This is an ambitious vision, but one that is now ripe for implementation.

Transform Finance, the organization I run, co-founded with Morgan Simon, set out to answer this question by analyzing what seems to have worked – and what hasn’t – in the first wave of impact investing. We distilled that analysis into three overarching principles:

  1. Communities should be engaged in the design, governance, and ownership of projects that affect them.
  2. Investments should add, rather than extract, value to the communities where they are deployed.
  3. Risks and returns need to be fairly balanced between investors, entrepreneurs, and communities.

 

Read the full article about impact investing by Andrea Armeni at Transforming Finance