There are moments in history when the needs of an age prompt lasting, positive innovation in fnance—from ideas as big as the invention of money, to the creation of new institutions such as banks and insurance frms, to the development of new products and services such as mortgages, pensions, and mutual funds.Evidence suggests that many thousands of people and institutions around the globe believe our era needs a new type of investing. They are already experimenting with it,  and many of them continue even in the midst of a fnancial and credit crisis. That’s why the idea of using proft-seeking investment to generate social and environmental good is moving from a periphery of activist investors to the core of mainstream fnancial institutions. No one can know for sure how much money has been invested or is seeking investment that generates both social and environmental value as well as fnancial return. But a good guess is that the total size of the market could be as big as $500 billion within the next decade.

These impact investors want to move beyond “socially responsible investment,” which focuses primarily on avoiding investments in “harmful”  companies or encouraging improved corporate practices related to the environment, social performance, or governance. Instead, they actively seek to place capital in businesses and funds that can provide solutions at a scale that purely philanthropic interventions usually cannot reach. This capital may be in a range of forms including equity, debt, working capital lines of credit, and loan guarantees. Examples in recent decades include many microfnance,  community development fnance,  and clean technology investments.

What’s most interesting today, though, isn’t identifying this new promise. Rather, we will argue that this moment is a messy transition—made even messier by 2008’s fnancial crisis—in an evolution of activity that is already several decades old. How this transition is traversed, and how quickly, will determine the scale and ultimate impact that this new domain of investing can and will have.The pressing question is whether impact investing will remain a small, disorganized, underleveraged niche for years or even decades to come—or whether leaders will come together to fulfll the industry’s clear promise, making this new domain a major complementary force for providing the capital, talent, and creativity needed to address pressing social and environmental challenges.

Our analysis shows that two types of peril will need to be confronted explicitly to seize the promise inherent in the current transition for impact investing:
• The risk that investing for impact will ultimately be too hard. Here, hype, poor thinking, and sloppy execution would cause so much disappointment that relatively little capital would wind up in this new style of investing. The will to overcome the typical challenges facing a messy, new industry could disappear as investors simply give up too soon, especially in the face of strong macroeconomic head winds.
• The risk that investing for impact will ultimately be too easy. Here, the defnition of social and environmental impact could turn out to be so loose and diluted as to be virtually meaningless. At best, this outcome would turn this type of investing into a “feel good” rather than a “do good” exercise. At worst, it could actually divert capital away from philanthropy, decreasing the resources dedicated to confronting serious societal challenges.

Successfully confronting these risks will require leaders and investors to insist on precision—on sustained rigor and refection—in the midst of genuine excitement and good intentions. Such scrutiny would be necessary even without global fnancial fragility. But the travails triggered by the sub-prime credit crisis are a reminder that investing well is hard in any circumstances and wishful thinking is not a strategy for confronting real risks. We will argue here that the precision most needed in the years ahead requires confronting a paradox: impact investing is both one thing, and many things. This moment of transition requires leaders to build the collective will that can only come from seeing the common whole that is emerging from diverse elements in this emerging industry. But at the same time, what is needed to accelerate progress is the ability to separate and make distinctions, so that action is meaningful on the ground.

Our purpose is neither to celebrate nor to simply warn of the dangers ahead. Instead, we hope to lay out what it would mean to set the bar high enough—to advance this emerging industry systematically, with demonstrable impact on urgent social and environmental issues.Our focus on impact investing is in no way a diminution of the critical role of philanthropy or a view that impact investing can and should broadly supplant it. These times remind us how easy it is to slide into market triumphalism—where we lapse into the sloppy (and incorrect) thinking that investment and market mechanisms are the solutions to all our problems. However, the magnitude and nature of the problems humanity faces also require the harnessing of additional investment capital.

This report has been designed as a guide for the innovative leaders who can accelerate the progress of impact investing—investors, advisors to investors, entrepreneurs, philanthropists. It summarizes our fndings about:
• The current state and shape of the industry at a critical moment in its development—so you can locate yourself in the current landscape, refect on its opportunities and challenges, and understand what has catalyzed other industries at this phase of evolution
• How impact investing might evolve—so you can develop an understanding of what the future may hold, including the promise and tradeoffs of pursuing different strategies
• An approach for accelerating the growth and impact of this style of investing—so you can assess what you can do to seize the business opportunities inherent in it and understand what could be achieved by joining with others
• A call to action—so you can understand the importance of the moment and can develop a concrete sense of what success in building a marketplace for impact investing might look like in the months and years ahead