Sometimes a prosaic AI query produces something that looks more like parody. The other day, I asked Claude to give me the latest definition of “impact investing” versus philanthropic investing and it served up this gem:

There’s ongoing discussion in 2024 about whether the definition should evolve beyond intentionality toward emphasizing real-world change and the additionality of capital.

The conclusion of that discussion was basically, “Um, no.” And the increasingly obvious reason is that “real-world change” often requires something less than market rates of return. I’m old enough to remember the heady days when impact investing was about “patient capital” and concessionary finance and maybe—gasp—trying to be accountable for impact. Now what we get is “intentionality.”

And sometimes we don’t even get that. Anyone who works in Sub-Saharan Africa has witnessed the steady dwindling of capital that would qualify for even the most generous definition of impact investing. There are continually fewer practitioners, investing continually less money, and trying to mitigate risk with increasingly onerous due diligence. Given the dramatic contraction of Big Aid, we need market-based solutions more than ever, and it’s a really bad time for impact investing to be failing us.

Luckily, I have a solution to the myriad disappointments of impact investing: Get rid of it.

The fundamental problem is that impact investing is neither fish nor fowl. Philanthropists and philanthropic investors look at the returns impact investors are seeking and think they’re greedy. Investors look at the concessionary deals necessary to drive “real world change” and think they’re dumb. Funders who are at pains to be risk-taking and generous in their grantmaking suddenly become steely-eyed, risk-averse nitpickers when looking at high-impact for-profits. Nobody’s happy.

Impact investing is supposed to occupy a space between philanthropy and commercial investing. Intentions without concessions have left that space mostly empty. This stifles much-needed innovation in poor countries, because the things that make them poor are the same things that make them hard places to start and grow businesses. It’s not going to happen without concessionary finance. “Concessionary” means you’re taking a hit on expected return because you’re serious about impact. That means cheap loans, risky equity positions on generous terms without expectation of higher returns, and even straight-up grants.

Read the full article about philanthropic investing vs. impact investing by Kevin Starr at Stanford Social Innovation Review.