IIF Insights: Demystifying Impact Investing

Impact investing has emerged over the last decade as one of the most talked about new strategies for tackling social and environmental problems. The emergence of the concept has been accompanied by a great deal of hype and a confusing array of competing definitions of impact investing. The purpose of this report is to evaluate the size, scope and scale of the impact investment sector. We sought to answer several core questions. Firstly, rather than seek to develop a single comprehensive definition of impact investing, we have differentiated between investments on the basis of whether they seek to generate financial returns comparable to traditional investments with the same risk profile or whether they also accept lower financial returns to achieve higher social returns. To add a further layer of differentiation, we also distinguish between investments that focus on creating impact in developed and developing country markets. This approach allowed us to categorize the forms of capital and the geographic
focus. Next, we sought to develop a clearer picture of what constitutes a market rate of return in impact investing and how this compares to traditional investments. We also examined the difference between targeted and realized rates of returns in impact investing to assess the performance of this investment category.

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