Giving Compass' Take:

• Yael Gilboa, writing for Harvard Business School, discusses the increased interest among philanthropists in impact investing.

• How is impact investing different from traditional philanthropy? What nuances within the practice will potentially challenge funders?

• Check out the Giving Compass Impact Investing Magazine to learn more. 

I came to HBS knowing that I wanted to do impact investing. I left HBS realizing that no one knows what that means. I won’t spend time defining SRI (Socially Responsible Investing), ESG (Environmental, Social, and Governance), SDG (Sustainable Development Goals) or other TLAs (three letter acronyms!) because there are plenty of people doing that with facts and stats to back it up. I will only take a few words to pay homage to the fact that there has been an explosion of interest in the space, however you define it, the scope of which may be debatable, the direction of which is not. To me, it’s a no-brainer, and others are waking up to that epiphany as well.

Investing is hard, and creating impact is hard, so impact investing is arguably hard squared, and you don’t catch any breaks from the finance or philanthropy folks. Both sides challenge whether you can generate top-tier financial and impact returns; some people think that you can and try, and some people think that you can’t and don’t. No matter how many alliterations you use (“mission and margin” or “profit and purpose”), people seem to forget that we are all well-intentioned, that there are different appropriate sources and uses for capital, and that innovation is not something to shy away from.

In the world of philanthropy, we have seen a shift towards venture philanthropy, applying the principles of venture capital to philanthropic causes by leveraging dollars multiple times with refundable grants, or by ensuring that $1 invested in a program has a multiplying effect, putting more dollars into the hands of those who need it most – a different type of 10x-er. That does not mean that traditional models of philanthropy are antiquated or no longer needed – there are simply some causes better suited to venture philanthropy.

Many investors shy away from the term “impact” because so much of the dialogue gets mired in the word “concession.” It’s time to move past that. It’s time to start treating impact investing like any other deployment of capital – on the merits and risks of the opportunity, keeping in mind the sources and uses of capital. And remember that we’re all on the same team.

Read the full article about impact investing by Yael Gilboa at Harvard Business School.