The Philanthropy World Is Embracing Impact Investing

Giving Compass’ Take:

• More foundations are starting to utilize impact investing practices to help achieve the UN Sustainable Development Goals. 

• In what ways can your foundation pivot toward SDG alignment? Where is there room for collaboration to achieve these goals?

• Read about impact investors who are setting the tone for aligning with the SDGs. 

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In 2015, the United Nations laid out its Sustainable Development Goals (SDG) to track global progress against massive social and environmental challenges like extreme poverty, inequality, and climate change. But hitting those goals will take more than creative public and private partnerships: it will cost money.

The good news is that, in just a year and a half since the call came out, the impact investing industry is picking up the slack.

In 2016, investors looking for financial returns that demonstrate social good improvement committed $22.1 billion to 8,000 investments. All told, the emerging industry, which is less than a decade old, has at least $114 billion in assets under management, according to a recent report by the Global Impact Investing Network, a nonprofit organization to increase the scale and effectiveness of impact investing.

The Omidyar Network, a philanthropic investing group pioneered by eBay founder Pierre Omidyar and his wife, Pam, has certainly taken that approach “In some cases—perhaps even most—a strong positive correlation does exist between financial return and social impact. In other cases, a company can generate significant social impact even if its financial return is modest,” writes a team of Omidyar-affiliated authors tasked with explaining the new rules of this economy in a  Stanford Social Innovation Review report.

While carefully structured impact investing has proven it can generate profits comparable to standard investments, some groups–including many chasing SDG-alignment–aren’t necessarily using it that way. Roughly one-third of funders are comfortable taking below-market rate returns or break-even paybacks (so-called “capital preservation”) to grow the both field and slower rolling startups that might eventually make a bigger dent in these problems.

Shifting norms toward SDG alignment, in particular in a way that focuses on long term impact over short term gains may help set the standard for what’s expected as more traditional investors move into the space.

After all, the entire goal is to fund solutions that can actually improve the world.

Read the full article about impact investing and SDG alignment by Ben Paynter at Fast Company.