Impact investing has evolved from frontier to mainstream over the past decade as investors validated the prospect of achieving market-rate returns alongside social or environmental good. Few paid attention to a companion approach that put impact first and accepted below-market returns. But that’s changing. Impact-first investing is rapidly emerging from the neglected middle ground between market-rate impact investing and philanthropic grants. (See Figure 2.)

Impact-first impact investing, also called “catalytic capital,” is well-suited for investors “who want to support enterprises or funds that have high-impact potential but struggle to raise suitable financing because they are too early-stage or otherwise risky, expect to generate only modest returns, or require a longer investment time horizon,” explained the Catalytic Capital Consortium, a leading advocate.

Among all investors, wealthy individuals and families are uniquely positioned to champion impact-first investing and to be leaders in the field. Fiduciary obligations bar conventional impact investors who have raised capital from multiple parties with the explicit intent to deliver market-rate returns. By contrast, high-net-worth individuals (HNWIs) and family investment offices have the discretionary power to declare impact a priority when investing assets.

A small number of family offices already have incorporated the impact-first approach as part of their overall investment strategy. Many others remain on the sidelines. Some fear that putting impact first means bad investing or that you don’t care about returns. Advocates maintain that neither is true. Impact-first simply means that the returns that matter most are measured in lives changed, not simply financial gain.

In more than three dozen interviews with HNWIs, family office directors, fund managers, and intermediaries, we heard how pioneers in the field, such as Omidyar NetworkBlue Haven InitiativeCeniarth, and Spring Point Partners, have put impact first by pursuing a three-step process: 1) clarifying a commitment to impact and 2) relying on trusted collaborators to set the stage for 3) choosing the investment approach that best fits their needs.

Read the full article about investing that puts impact first by Michael Etzel, Matt Bannick, Mariah Collins, Jordana Fremed, Roger Thompson at The Bridgespan Group.