What Needs To Happen For Impact Investing To Be The World-Changing Force It Could Be

The idea of investing both for profit and social good has come a long way in the last few years, but the sector still has enormous potential to grow.

The idea of deploying capital not only to generate a profit but to create some social return–“impact investing”–has come a long way in the last few years. From benefit corporations to social impact bonds, we now have plenty of variations on the theme, but perhaps not as much progress as first appears.

For example, a recent report from the Global Impact Investment Network and JP Morgan said the world’s 125 leading impact investors will raise their commitments by 125% this year. And yet, there’s universal agreement in the sector, even among its biggest champions, that it’s nowhere near the force it could be.

Various recent reports and books have attempted to identify bottlenecks to further growth. The latest comes from an international task-force set up by the G8 group of leading industrial nations. Called the “Impact Investment Report”, it’s a comprehensive survey of the scene, combined with some detailed proposals for what needs to happen if impact investing is to gain steam. Here are a few ideas we picked out.

PUT A VALUE ON SOCIAL OUTCOMES

Social impact bonds pay a return to investors if a social goal is met–say, a reduction in the recidivism rate at a prison. The report argues that intermediaries would be more likely to organize investment rounds if the potential value of the improvement was more visible or quantifiable–say if keeping one person out of prison equals returning $50,000 to the taxpayer. “Greater transparency about the fiscal value of achieving specific social outcomes would help enormously, by showing social innovators where opportunities exist to do better,” the report says.

The U.K. government now publishes a “Unit Cost Database” covering 640 social issues, from education to crime. For example, a child taken into care costs taxpayers over $100,000 a year. So, investors now know they need to provide a solution that costs less than that. Such measurements would also allow non profit groups to put a value on the services they offer, and allow something like a market to develop.

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