Passing the Torch on Impact Investing
An introduction to the recently released book New Frontiers of Philanthropy.
In their 2011 book Impact Investing: Transforming How We Make Money While Making a Difference, Antony Bugg-Levine and Jed Emerson—in many respects, two of the legends in the impact investing field—recognize that the challenge of the field “is to bring the [impact investing] perspective from the fringe to the mainstream.”
And while they express the hope that “some of the early visionaries [will] remain powerful voices,” they also recognize that this shift will require new voices: “communicators who act as mainstreaming messengers ... conduits that can absorb the lessons from visionary practice and communicate them effectively to much wider audiences.”
The book New Frontiers of Philanthropy: A Guide to the New Actors and Tools Reshaping Global Philanthropy and Social Investing, published last month, may help fulfill Bugg-Levine and Emerson’s wish to expand the discourse with new (and renewed) voices. Led by Lester Salamon, a professor at Johns Hopkins University and an expert on the nonprofit sector and philanthropy, the book pops the hood on developments underway at the edges of philanthropy and social investing, and provides a new level of insight into the engine powering this new era of social-purpose finance. This vision to move from the headlines to the fundamentals (a point I have explored previously) is the very reason I was drawn to the project.
At the same time, the book provides a new tool for the impact investing field—one that may help the field make the leap from a still relatively small band of imaginative innovators and ardent enthusiasts to a broader group of well-intentioned philanthropists, foundation officials, nonprofit executives, social entrepreneurs, and next-gen leaders who have heard the siren call of “impact investing” but have held back, uncertain about its pedigree or longevity, and unclear about how to connect their own passions and interests to this emerging world of social-purpose finance.
To create this edited volume, Salamon assembled a team of experts from the worlds of impact investing, philanthropy, community development finance, mainstream investing, and academia to contribute chapters—including leaders from The Economist, Harvard University, Center for American Progress, Global Impact Investing Network, Venture Philanthropy Partners, and ACCION International. The result is a comprehensive and authoritative guide to the new actors and tools reshaping global philanthropy and social investing.
The book makes sense of the chaotic new world of social-purpose finance and systematically examines each of the types of new actors that have surfaced (including capital aggregators, secondary markets, enterprise brokers, capacity builders, and foundations operating as philanthropy banks). It also details how the many well-known tools of standard investing (such as loans and credit enhancements, fixed-income securities, private equity investments, and insurance) now fit the special requirements of social-purpose activity.
Salamon’s take on the “new frontiers of philanthropy” is generally positive, but in his introduction (also available as a standalone volume), he acknowledges the limitations facing impact investing. For example, impact measurement has arguably become the third rail of impact investing. A solution beyond a focus on metrics has thus far been elusive, raising the risk of counting jobs when the goal is really empowerment or counting houses when the objective is building a community.
Efforts both global and local continue to try to make sense of the policy implications of impact investing, attempting to generate an enabling environment that fosters greater activity. Even here, though, the field continues to debate the role of government; how the public sector can productively catalyze activity in a way that does not embrace the nascent market too closely so as to stifle progress is a major challenge.
The distributional impacts of who wins and who loses has played out in very real ways across the field. The new frontiers may favor subsectors. For instance, organizations and enterprises working on issues where there are few tangible assets and where metrics for quantifying the social impact of investments are difficult to define (such as advocacy and human rights) are at a competitive disadvantage to those working on housing, economic development, and education.
The book elaborates on these points and explores important implications for philanthropy, impact investing, and mobilizing private resources for public purposes. It also provides an agenda for advancing the field to its next stage.
The target audience for the volume is not necessarily the avant-guarde innovators who have done so much to create this new field, but the far larger band of mainstream investors and philanthropists who have heard the terminology but still harbor considerable skepticism about what it really adds up to and whether it is right for them. The book is also for the potential next generation of participants in the social-purpose finance arena, who are now either passing through business schools, nonprofit training programs, and public policy and public administration programs, or just entering careers in this field (authoritative literature suitable for classroom use has long been lacking).
Here, in short, is an example of what Bugg-Levine and Emerson called for: a conduit that can “absorb the lessons from visionary practice and communicate them effectively to much wider audiences.” The impact investing movement may be ready for its next phase of development, and hopefully this book can help the field achieve real take-off versus becoming another in a succession of passing fashions.