Foreword to my paper published on Themiddleroad.org under publication section.
Impact Investing is fast becoming a rising phenomenon of delivering social good globally. The term “Impact Investing” was coined in 2007 by the Rockefeller Foundation to distinguish investments for generating both social/environmental impact and financial return. In the recent years, with the rise of Generation X in leadership positions and millennials entrepreneurs primarily in private and public companies along with a sustained thrust by UN through its ambitious collection of 17 SDGs has boosted awareness on social and environmental causes. The set of SDGs forms the central thesis of social equality and economic betterment today and includes removing extreme poverty, driving economic growth, quality education, healthcare, and sanitation for all along with increased use of alternative energy by 2030. IFC estimates a transfer of $30T in wealth to Gen X and Millenials over the next three decades in North America alone. Gen X, “the kick-ass generation” which grew up on MTV; rock, grunge and metal music and millennials over the years have shown an increasing penchant for driving positive social/environmental change through social innovation and social entrepreneurship at the bottom of the pyramid.
To catalyze sustainable social businesses and address the increasing funding gap in the social ecosystem, major multilateral, and development financial institutions shared financial innovation and best business practices in the public sector. Further, civic societies, broadbased activism through social groups, shareholders, and corporates backed by collective political goodwill drove asset managers, foundations, and philanthropists to promote evidence supported solutions in social impact. New ways emerged in tapping capital markets through Corporate Responsibility, Social Bonds, and Blended Finance for funding development projects in the social and environmental sector.
Pay for success bonds refreshed partnerships between public and private sector through financial incentives for achieving measurable interventions and social goals. The Global Steering Group for Impact Investment (GSG) formed in 2015, set a platform for bringing global leaders from the world of finance, philanthropy, and business to drive impact investing and social entrepreneurship. Twenty-three countries and EU are members of GSG highlights the convergence of blending measurable social impact with financial return. The development of Social Impact Investment Framework by OECD and the recent establishment of Operating Principles of Impact Management by IFC and other institution is a positive step in the right direction for promoting development in impact space. However, still, it’s a long way forward. Majority of the investors still expect market-driven returns (evidence suggests gains in line with market returns), the precursor of increase in blended finance deals in the development sector. This mindset needs to change for social impact to become a mainstream theme in investing. It is pertinent to note that impact investing is less than 1% of global capital and far from a panacea in the development sector. India leads in impact investing in South Asia and is a major force globally.
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