than many have thought, and a pathway of practice and expertise we invite you to explore in the following chapters.
Audience
Our focus is impact investing – and practitioners in the field are certainly a core audience that will benefit particularly from new insights into the structural and strategic characteristics associated with high-performing impact investing funds. However, this book also has broader application, just as impact investing sits at the apex of Collaborative Capitalism. (We will discuss this in more detail in chapter 1.)
Although there are ongoing discussions regarding the nature and practice of impact investing, the concept really is quite straightforward:
Impact investing is capital management in pursuit of appropriate levels of financial return with the simultaneous and intentional creation of measurable social and environmental impacts.
What's important to understand is that the lessons of impact investing are also the lessons of Collaborative Capitalism, a larger field of practice that encompasses everything from corporate social responsibility (CSR) to operational and supply chain sustainability, public private partnership, and socially responsible investment (all in an effort to mitigate risk).
Increasingly, financial institutions and corporations around the world are using Collaborative Capitalism as a tool to proactively generate clear, positive social outcomes in addition to profits and wealth. This is a profound and transformational shift in what economic activity and capital make possible (adding an entirely new measure of extrafinancial performance). From the capital markets perspective, impact investing has the potential to forever change the way we consume financial services.
Consider this one data point from the World Economic Forum: Although just 6 percent of US pension funds reported in 2013 that they had made an impact investment, fully 64 percent expected to in the future.2
Even if it takes these pension funds decades to follow through and just half pursue the opportunity, the ramifications are clear: impact investing is going mainstream, pushing those already engaged in “risk-mitigating” capitalism to think more clearly about outcomes, and those unfamiliar with Collaborative Capitalism to quickly get up to speed.
The Impact Investor speaks directly to numerous audiences touched by Collaborative Capitalism and provides some of the following important insights and easy-to-apply tools:
• For mainstream investors, including commercial institutions, fiduciaries, and individuals, The Impact Investor provides actionable insights into the characteristics and performance of a range of proven impact investing strategies. It also paints a picture of the unique skills of impact investors, and the right questions to ask when weighing a fund's likelihood of delivering the financial and social value it promises. The Impact Investor also recommends concrete steps investors can take directly, in their own portfolios, to deliver positive social or environmental outcomes in addition to attractive rates of financial return.
• For corporate executives, The Impact Investor provides evidence a new era of Collaborative Capitalism is emerging – the next essential paradigm in business, building on CSR and other evolutions in thinking regarding the place of business in advancing social or environmental performance. By showcasing the work of impact investing funds at the forefront of this trend, this book portends a set of practices that, in less than a decade, will become commonplace in all business settings. By studying the work of impact investors, business executives will gain material insight into a range of strategies for ensuring that their companies remain profitable and sustainable. Executives will also gain skills needed to be more successful operators in a world that is more sector agnostic than ever and populated by a new generation of Millennial customers.
• Entrepreneurs will learn what makes impact investors tick and the type of business approaches they typically invest in. This book will provide entrepreneurs with insights into partnering and working with investors, and the other multilingual skills and new approaches they should master (alongside impact investors) in order to be as effective as possible. Each of the impact investing funds we feature is also entrepreneurial in its own right. The lessons from the experience of these funds will be invaluable for any innovative business leader.
• Community and social change agents will gain insights into how capital can be used to drive social and environmental justice. The tools of finance are increasingly being appropriated to support community vehicles – nonprofits, businesses, cooperatives, social enterprises, and any number of other structures – delivering job creation and opportunities for expanding employment and development to those presently excluded from local and regional economies.
• For teachers and students of business, the book offers a range of new analytical frameworks for assessing the structure and rapid development of impact investing, created with the benefit of extensive primary data. These frameworks have broad business applications, and our research methods and approach to documenting performance can be applied in most markets. The book also presents clear paths for continuing research and opportunities for further academic and thought leadership. All students will benefit from understanding the operational approaches being applied by funds using cutting-edge financial instruments in pioneering markets.
• For philanthropists, the book presents a comprehensive overview of what it means to be “catalytic” by delivering a magnitude of social value never before seen as an intentional outcome of private investment. The book highlights the involvement of a number of philanthropic leaders in the funds we researched, two of which are private foundations. The book will help philanthropists understand what it means to engage in impact investing, how to get started, and the kinds of approaches that will increase the probability of success.
• Public officials will recognize a range of private investment strategies in The Impact Investor that have already been utilized by policymakers to drive the delivery of social and environmental impacts at scale. The book describes an ideal form of public-private partnership and the steps needed, primarily on the part of impact investors, to actualize this heightened form of collaboration. Public officials will see a powerful, evolving role for government in the development of impact investing, and the opportunity to stretch limited resources in innovative new ways. As essential partners in impact investing, public officials will benefit from the book's broader insights into the future of finance and business and its relationship to diverse constituencies, a perspective already at the heart of government.
No book can be all things to all people. Readers should know that much of our data and real-life examples of Collaborative Capitalism are drawn directly from impact investing funds. The rest is drawn from the broader literature and our personal experiences in the fields of impact, philanthropy, policy, and investment. Two of us have been private impact investing fund managers, and two of us have been foundation executives making grants and program-related investments, a key form of impact investment. One of us has been a business and finance reporter; two of us have written guidebooks for practitioners that include models and frameworks that, more than a decade after they were published, continue to be widely used across the social enterprise and impact investing sectors. We have experience in successfully changing the way people think about and understand complex topics. Two of us have been publishing and teaching on these topics for more than fifteen years each. One of us coauthored the first book ever published on the topic of impact investing; one of us was a public official focused on economic development before advising the largest pension fund in the United States on its impact assessment practice; and one of us helped create an emerging standard rating system for impact investing funds worldwide.
A Focus on Intermediaries
Through these experiences, we initiated our major collaborative research
World Economic Forum. (2013, September). From the Margins to the Mainstream – Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors. http://www3.weforum.org/docs/WEF_II_FromMarginsMainstream_Report_2013.pdf.
