Rockefeller Philanthropy Advisors explains the premise of impact investing and outlines the benefits and challenges
Traditionally, philanthropy and investing were seen as separate disciplines, but this is no longer the case. This guide, written by Rockefeller Philanthropy Advisors, outlines how impact investing integrates these two approaches, allowing them to achieve social good as well as generate financial returns.
The guide provides an overview of impact investing and its potential to address societal challenges by harnessing capital markets. It also discusses the history and growth of impact investing, the different types of impact investments, and the risks and benefits of using this approach to advance philanthropic goals.
In addition to case studies, the guide also contains a glossary to help donors navigate through the sector jargon, and some additional web resources for further reading.
Overall, the guide provides valuable insights, examples, and considerations for donors and philanthropists interested in incorporating impact investing into their philanthropic strategies. It helps them understand the potential of impact investing to achieve social and environmental impact while aligning with their financial goals and values.
Nevertheless, it is important to remember that impact investing is only one tool among many to achieve goals, which can be integrated into an overall portfolio strategy. Donors and philanthropies will need to consider their own values, goals, and opportunities, before determining if impact investing is a good fit for them.
An abridged summary of the guide is shared below with permission (and is also available in Arabic here). You can download the full guide from RPA here.
Impact investments are defined as investments made into companies, organisations, and funds with the intention to generate social or environmental impact alongside a financial return.
While this definition leaves room for a broad set of investments, two key elements should be present: intentionality and measurement. The investor’s intention should include some element of both social impact and financial return. And while there is more consensus on metrics for financial return on investment (ROI), an impact investor should also aim to measure the social impact.
In essence, all investments make an impact on society; some positive, some negative. Impact investors intentionally pursue investments that lead to measured positive social impact (for the purposes of this guide, we include environmental impact in the broader header of social impact).
How does impact investing help further impact goals?
How does impact investing help further financial goals?
How can philanthropy help advance impact investing?
Donors and investors say they are attracted to impact investing for a variety of reasons, including:
Donors note that other aspects of impact investing can pose difficulties:
B LAB A nonprofit organisation focussed on using business for good through its B Corporation certification, promoting new mission- aligned corporate forms, and providing analytics for measuring what matters. Read more
Confluence Philanthropy A non-profit network of over 200 foundations that builds capacity and provides technical assistance to enhance the ability to align the management of assets with organisational mission to promote environmental sustainability and social justice. Read more
Global Impact Investing Network (GIIN) & Research Center A network of impact investing professionals advancing the impact investing industry and offering information and resources to investors, including a global directory of impact investing funds (ImpactBase), a set of metrics to measure and describe social, environmental and financial performance (IRIS), an annual survey of impact investing trends, and a rating system for impact investing funds using B Lab methodology (GIIRS). Read more
ImpactBase A searchable online database of impact investing funds and products, helping connect investors with investment opportunities. Read more
ImpactAssets A nonprofit financial services firm dedicated to advancing the field of impact investing, publishing an annual database of 50 experienced private debt and equity impact investment fund managers. Read more
Investors Circle An early-stage impact investor network made up of individual angel investors, professional venture capitalists, foundation trustees and officers and family office representatives. Read more
Mission Investors Exchange (MIE) Network of foundations and mission investing organisations offering workshops, webinars and a library of reports, guides, case studies and investment policy templates – with the goal of sharing tools, ideas and experiences to improve the field. Read more
The ImPact & The ImPact Library A network of families joined by a pact to improve the impact of their investments – providing education, inspiration, and tools to make more impact investments more effectively. Read more
Toniic An international impact investor network promoting a sustainable global economy and offering peer-to-peer opportunities to share, learn, co-invest – including a searchable directory of impact investments, an impact portfolio tool, and multi-year studies of impact investing portfolios. Read more
Blended value: A business model that combines a revenue- generating business with a component which generates social-value; coined by Jed Emerson and sometimes used interchangeably with triple bottom line and social enterprise; sometimes referred to as blended return or blended finance.
Concessionary return: Return on an investment that sacrifices some financial gain to achieve a social benefit (Source: SSIR).
Corporate social responsibility (CSR): A form of corporate self-regulation integrated into a business model; CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms, and sometimes goes beyond to support or achieve social good (Also referred to as corporate conscience, corporate citizenship, social performance, or sustainable responsible business).
Double / triple bottom line (DBL/TBL): Investments that deliver financial returns and social and/or environmental impact.
Environmental, social, and governance (ESG): Factors which social investors may consider as part of their investment analysis as a way to evaluate whether their investments promote sustainable, fair and effective practices and mitigate potential risks; ESG may be referred to as “ESG investments” or “responsible investing.”
Market rate impact investment: An investment designed to result in positive social or environmental benefits while generating financial returns that are comparable to similar conventional instruments.
Mission-related investments (MRIS): Investments from a foundation’s endowment that seek to achieve specific goals to advance the foundation’s mission while targeting market-rate financial returns comparable to similar non-mission focussed investments. MRIs are not an official IRS designation and are conventionally distinguished through the explicit advancing of the foundation’s mission and programmatic goals. Opportunities for MRIs exist across asset classes and issue areas.
Negative screen: Avoiding investments in generally traded companies on perceived social harm.
Pay-for-success contract (social impact bonds, SIBs): A contracts that allow the public sector to commission social programs and only pay for them if the programs are successful.
Programme-related investments (PRIs): Investments that provide (1) capital at below-market terms or (2) guarantees to nonprofit or forprofit enterprises whose efforts advance the investing foundation’s mission; PRIs are counted as part of a foundation’s annual 5 percent distribution requirement; generally expected to be repaid, they can then be recycled into new charitable investments, increasing the leverage of the foundation’s distributions.
Return on investment (ROI): A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.
Social enterprise: An organisation that applies commercial strategies to maximise improvements in human and environmental well-being, rather than simply maximising profits for external shareholders; can be structured as a for-profit, non-profit, or hybrid.
Social entrepreneurship: The process of pursuing innovative market-based solutions to social problems while adopting a mission to create and sustain social value.
Social finance: An approach to managing money that delivers a social dividend and an economic return.
Socially responsible investment (SRI): An investment strategy that seeks to consider both financial return and social good; socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity; also known as sustainable, socially conscious, “green” or ethical investing.
“Impact Investing: An introduction” was written by Rockefeller Philanthropy Advisors (RPA), which accelerates philanthropy in pursuit of a just world. Continuing the Rockefeller family’s legacy of thoughtful, effective philanthropy, RPA is a global nonprofit that remains at the forefront of philanthropic growth and innovation, with a diverse team of experienced grantmakers with significant depth of knowledge across the spectrum of issue areas.
Founded in 2002, RPA has grown into one of the world’s largest philanthropic service organisations and has facilitated more than US$4bn in grantmaking to more than 70 countries. RPA currently advises on and manages more than $500m in annual giving by individuals, families, foundations, and corporations. RPA also serves as a fiscal sponsor for more than 100 projects, providing governance, management, and operational infrastructure to support their charitable purposes.
Download a PDF version of the original guide here. An Arabic version of this summary is available here.
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