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Impact Investing: Transforming how we make money while making a difference - An excerpt
Book Reviews
by Antony Bugg-Levine and Jed Emerson
on March 12, 2012

Chapter 1: The Coming Disruption

 

Impact investing has gained its foothold following an historic 
period of upheaval in the capital markets. In fact, the financial
 crisis of 2008 precipitated the largest impact investments of all 
time. Just like pioneering impact investors, governments around
 the world recognized the need and opportunity to go beyond
 donations in their scramble to protect jobs and social stability by 
shoring up private companies. They invested tens of billions in
loans, equity investments, and guarantees, the basic tools of the impact investors that we describe extensively in this book. And the
 forces that set off the first ripples of the impact investing movement 
continue to grow:

• With gathering intensity, wealthy investors and
 philanthropists have become impatient with old approaches 
in the face of intractable and increasingly visible
 environmental damage and poverty.

 

• A new generation of business and socially savvy 
entrepreneurs is launching ventures across an array of
 geographies and sectors that creatively structure investment
 capital to tackle society’s challenges and pursue new market 
opportunities.

 

• Cash-strapped governments are redefining the ir
relationships with private business as demographic realities
 force a reexamination of fundamental components of the 
social contract.

 

• The rise of online social networking platforms creates the 
potential for thousands of investors to talk, share, and
 engage with each other as they identify, vet, and place 
investments in social entrepreneurs the world over.

 

These forces are finding their outlet in impact investing for
blended value. Implementing this simple concept is not easy. Although impact investors see the opportunities in an integrated
 approach, our systems have not yet caught up. Frustration 
abounds as the old only grudgingly gives way to the new.

 

The current of impact investing is washing along the shores 
of a bifurcated world still organized to separate profit making 
from social and environmental problem solving. For now, this 
bifurcated world channels the energy of impact investors into the 
hidden pools and underground rivers on the margins of mainstream 
investment and philanthropic activity. But water has a powerful
 ability to reshape the world it flows through. The gathering weight
 of impact investment activity is wearing away the bedrock of
 seemingly immovable institutions and investment practices.

 

Impact investors will not long be content to force-fit their aspirations
into a set of systems created to support a bifurcated vision. Instead, these systems will inevitably change under the collective
 weight of a new generation of investors, entrepreneurs, and government 
officials flowing together in the pursuit of blended value:

 

• In the bifurcated world, established for-profit and nonprofit
 business models facilitate separate profit-maximizing 
investments and philanthropic contributions. In the world
 of blended value, a new class of social enterprises will
 organize to maximize the full blended value of investment.

 

• In the bifurcated world, laws and regulations clearly define
and protect traditional entrepreneurs, investors, and
 philanthropists. But they are ill suited to understand, yet 
alone guide, enterprises and investors seeking to maximize
 blended value. In the world of blended value, governments
 will determine how to harness impact investment to 
complement public resources in capitalizing the solutions to
 society’s most pressing challenges.

 

• In the bifurcated world, leadership development systems
 and support services create clear pathways for talented
 people to navigate separate careers in charity or business. In
the world of blended value, we will need new approaches to 
find and develop the professionals who want to apply their 
business savvy to create wealth and tackle social and
 environmental challenges together.

 

• In the bifurcated world, we know how to measure the value 
of financial investments and are getting better at describing
 the social impact of charity. In the world of blended value,
 we will create common language and measurement systems
 that can ensure we steer our capital and attention to the
 enterprises most adept at creating profit together with 
social value.

 

• In the bifurcated world, a vast array of institutions 
constitutes the capital markets that separately facilitate 
exchange between the donor and the charity and the
 investor and the business. In the world of blended value, 
these capital markets will turn to the task of connecting
 impact investors and social entrepreneurs.

 

We do not seek to overstate the changes that are occurring or
the challenges in sustaining that innovation. The bifurcated world will certainly linger. For many people, separating investing and
 charity will continue to make sense. But some established systems
 will inevitably adapt. And others will become increasingly isolated 
as they fail to evolve in response to the new conditions, replaced
 by new systems that do.

 

[Editor's note: Click here to listen to our interview with Antony Bugg-Levine]

 


This material is reproduced with permission of John Wiley & Sons, Inc.

Authors: Antony Bugg-Levine and Jed Emerson.

Copyright 2011 by John Wiley & Sons, Inc.

 

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