Understand Impact Investing

Key Insights

  • Impact investments combine social and/or environmental impact with financial returns
  • Impact-first investments focus on maximising the social/environmental impact more so than the financial element
  • 40% of impact investing assets under management are in North America, with 3% in Australia
  • 70% of all investors in Australia believe impact investing will become more significant over the next 5 years



Impact investing… harnesses entrepreneurship, innovation and capital to power social progress… By bringing a third dimension, impact, to the traditional capital market priorities of risk and return, impact investing has the potential to transform our ability to build a better society for all.

Global Social Impact Investment Steering Group1

A vibrant impact investing market is growing worldwide, as the private sector and governments seek innovative solutions to address the world’s most pressing challenges. At the same time, investors’ increasing recognition that their investment decisions have an impact on the world and its communities are leading them to seek out opportunities that not only minimise the negative impacts of their investments, but intentionally drive positive impact.

Emerging as a response to the growing challenges facing the world, impact investing has the potential to bring game-changing capital to challenges too large and complex to be addressed or funded by the government, the social sector, or philanthropy alone.


Impact investments are investments made into companies, organisations, and funds with the intention to generate measurable social and environmental impact alongside financial return.2

 Impact investing is characterised by THREE key aspects:

  1. Intention – the investment opportunity must be designed with a specific objective to achieve social and/or environmental impact. Investments where the impact is unintended are not considered impact investments.
  2. Measurable impact – the impact is able to be measured and reported.
  3. Financial return – the return on investment can range from concessionary (below market) through to market-rate and market-beating returns, but there is an expectation of at least return of capital.

Based on definitions from Global Impact Investment Network (GIIN)

A growing number of companies… are committed to doing well by doing good. They have explicit social goals and strategies and measure their impact. Providing capital to such companies that are aligned with those intentions is what impact investing is all about.

Sean Greene, The Case Foundation3

In the past decade, impact investing has developed to provide capital across a range of sectors including sustainable agriculture, conservation, renewable energy, microfinance, and affordable and accessible housing, healthcare and education.4 Allowing investors to make a meaningful financial return whilst investing in social and/or environmental objectives, impact investing directs the flow of capital towards funding and sustaining the innovative, scalable solutions needed to address the world’s most pressing social and environmental challenges.5 While impact investing is still in an emergent phase, its growth presents excellent opportunities for forward looking investors who know that the only profitable future is a sustainable one.

Figure 1.1sets out the potential of impact investing for investors, government, non-profit organisations (NFPs), social ventures, and the community.
Figure 1.2Adapted from Case Foundation’s A Short Guide to Impact Investing: A primer on how business can drive social change 2015


Expectation of financial return differentiates impact investing from philanthropy, and the specific objective of making and measuring impact differentiates it from traditional forms of investment.

The terms impact investing, Environmental, Social and Governance (ESG) investing and Socially Responsible Investing (SRI) are often used synonymously, but impact investing is distinctly different from ESG and SRI and other forms of ethical or socially responsible investing and it is helpful to understand these differences. Figure 1.4 shows the spectrum of common investment typologies.

ESG and SRI generally apply a set of negative or positive screens to an investment. Negative screening involves avoiding or excluding investments with low environmental, social or governance metrics, and screening companies under certain criteria. In contrast, impact investing goes beyond passive screening by seeking investment opportunities with the goal of affecting either or both social and environmental change with returns that may be below, at, or above market.

Figure 1.3Impact investing in context, financial return and impact.
Figure 1.4Adapted from the Impact Investment Spectrum by Sonen Capital

Impact investors deliberately target a range of financial returns, from a concessionary return of capital to competitive market rates. As Figure 1.4 shows, across the spectrum of impact investments, there are varying levels of financial return, reflecting the range of risk and return requirements of different investors.6

The GIIN’s 2018 survey revealed that nearly two-thirds of survey respondents principally target risk-adjusted, market-rate returns (Figure 1.5). The remaining Below-Market Investors seek returns closer to market rates (20%) or closer to capital preservation (16%).

Impact-first, finance first, or blended value?

The following terms are sometimes used to describe approaches to impact investment with respect to financial and social/environmental return.

Finance-first Impact Investments seek to maximise financial return while aiming to make a real and measurable impact. This means that investors set minimum impact objectives that must be considered when selecting investments. However, the expectation is that these investments will generally achieve financial returns that are competitive with traditional investments.

Impact-first Impact Investments seek to maximise social and/or environmental impact while still making some financial return, but it may be below risk-adjusted market rates of return. Impact first investors are primarily driven by their desire to create impact and are therefore willing to accept a below market financial return and/ or take higher risks to achieve these objectives. Philanthropic trusts and foundations are more likely to use this type of investment as an adjunct to their granting strategy, rather than institutional investors.

While impact-first and finance-first distinctions may be helpful in characterising opportunities and investment styles for some, there is a growing trend towards investors managing for total performance.7

Blended Value Investments seek to create sustainable, long-term solutions to global challenges through strategies that prioritise neither economic return nor social return, but rather a blend of both. They are located in a space between philanthropy, where no financial return is expected, and pure financial investments, which does not focus on social or environmental outcomes.

From a Donkey Wheel perspective, we genuinely believe that blended value is possible, generating both market rate type of returns and a significant social return. The underlying reason behind this is that if we can’t realise blended value, then we cannot unlock the full potential of the capital markets and its ability to do good in the world.

Paul Steele, Donkey Wheel Foundation

Paul Steele

While some investors fear impact investments will lead to smaller returns, with a trade-off between financial return and social impact, history has shown this is generally not the case.

There’s a persistent myth that impact investing automatically necessitates a trade-off in financial performance… But it’s quite feasible for impact investors to make competitive returns.

Abhilash Mudaliar, GIIN Research Director8

Figure 1.5Adapted from the GIIN’s 2018 Annual Impact Investor Survey

The GIIN’s 2018 survey revealed, based on the activities of 218 leading global impact investors,15% of respondents had their expectations exceeded in terms of both financial and impact returns, 76% received financial returns in line with financial expectations, 82% in line with impact expectations.  Just 3% of respondents have fallen short of their impact expectations and 9% of their financial expectations.9

This means that 97% of impact investors who responded to GIIN’s survey had their impact expectations met or exceeded, and 91% had their financial return expectations met or exceeded.

The GIIN’s conclusion was that impact investors can achieve market rate returns, as general funds for impact investment can perform at similar levels to traditional investment.10 GIIN Research Director, Abhilash Mudaliar, does indicate, however, that accepting below market returns plays a critical role in the industry,  including as a bridge between philanthropy and investing. This is explored further in Parts 2 and 8.

Figure 1.6Adapted from the GIIN’s 2018 Annual Impact Investor Survey


Just over a decade since a coalition of philanthropists and investors introduced the financial-services industry to the term ‘impact investing’, interest and participation in the movement has accelerated globally.

The majority of impact investment capital originates from America, Europe and the Asia-Pacific region; but demand for impact investment extends worldwide. This includes investments made throughout the world into for-profit, hybrid and non-profit ventures spanning a broad range of social and environmental objectives.11

Figure 1.7details the impact investing global environment in 2017. Source: GIIN Annual Impact Investor Survey 2017

It is difficult to accurately determine the current size and potential of the global market due to the broad range of definitions and approaches to impact investment, and the significant variation in estimates data between organisations. A current market snapshot for the size of the impact investing market, derived from data gathered from the GIIN Annual Survey Report 2018, a survey of 229 of the world’s leading impact investing organisations, provides the best-available “floor” for market size — US $228 billion.12 This is a significant increase on the previous forecast by the Global Social Impact Investment Steering Group that the market will exceed US $300 billion by 2020.13

Impact Alpha describe a shift of capital into a broader set of “sustainable” and “responsible” assets. In 2017, the capital pointed toward negatively and positively screened public equity and green bonds hit $23 trillion, a 25% increase in two years.14

Figure 1.8Adapted from Global Impact Investing Network, ‘Annual Impact Investor Survey 2018’ (Report, June 2018)
Moving toward the mainstream

This strong growth is supported by policy developments in many countries, the emergence of pioneering market builders, and a growing investment appetite worldwide. Globally, millennials and female investors are emerging as significant forces in impact investing.15 Studies by Morgan Stanley’s Institute for Sustainable Investing have found that 18- to 34-year-olds are twice as likely to invest in a portfolio or individual companies if they seek positive environmental or social impact16 and US Trust’s 2016 Wealth & Worth Survey of 684 individuals, revealed that impact investing by millennials has increased, inspired by a belief that their own investment decisions have the ability to influence social issues like climate change and poverty.

There is also a growing interest in impact investing among high-net worth Gen X (aged 35-51) and those with at least $10 million in investable assets.17

As evidence that impact investing is appealing to a more mainstream market, investment managers like Bain Capital, BlackRock, Credit Suisse, Goldman Sachs, and JPMorgan Chase are just some institutions that have added impact products to their portfolios.18

Figure 1.9Source Morgan Stanley Institute for Sustainable Investing, Sustainable Signals Report, 2017

As new products emerge from mainstream players with varying benchmarks for ‘impact’, initiatives like the Impact Management Project (explored in more detail under Measuring Impact) mark a significant step toward achieving a common language and shared fundamentals in the context of impact investing. Investors need to think through the impact that they are seeking to make with own own portfolio choices and risk/return considerations.

Figure 1.10source Morgan Stanley Sustainable Investing Survey 2017 shows the growth in impact investing among different categories.
The UN’s Sustainable Development Goals and impact investing

The United Nations’ Sustainable Development Goals (SDGs), launched in 2015, provide a global agenda to end poverty and protect the planet by 2030. Each of the 17 goals, shown in Figure 1.11, has targets that require financial investment. The UN estimates that funding initiatives to achieve the SDGs will require an additional USD 5–7 trillion per year. The UN has emphasised the critical need for collaboration of the private, public, and philanthropic sectors to resource the initiatives needed to achieve the goals to end poverty and ensure environmental sustainability by 2030. Impact investing will play a pivotal role in unlocking private capital to achieve the goals.

The SDGs provide an unprecedented and convenient framework with which to structure and modify portfolios to define the impact they aim to make. Investors have been encouraged to consider how their investments might contribute to achieving the goals and some of the largest pension funds, asset managers, and increasingly charitable trusts and foundations are taking up this challenge and are aligning their strategies with the SDGs.

sustainable development goals sdg
Figure 1.11The United Nations Sustainable Development Goals

Dutch pension fund PGGM, for example, identified six SDG focal goals in which to invest and, more locally, QBE are mapping their portfolios to the SDG goals at a higher level. Importantly, often investments cross multiple SDG goals (for example, a water waste management project involving wetlands development could promote clean water and sanitation, and life on land through biodiversity).

Figure 1.12Adapted from the GIIN’s 2018 Annual Impact Investor Survey

The GIIN has recognised the unique role that impact investing will play in catalysing capital towards achieving the SDGs. It has created profiles on a variety of impact investors to demonstrate how aligning to the SDGs is helping them develop impact strategies and goals, communicate with stakeholders, and attract new capital.19

Figure 1.13Adapted from the GIIN’s 2018 Annual Impact Investor Survey


A commercial laundry changing lives one wash at a time. An artisan bakery baking into its business model employment pathways for refugees and asylum seekers. A website empowering people with disabilities to choose their own caregivers. An ecotourism venture using animal attractions to create jobs and conserve precious bushland. A funeral business supporting dignified bereavement through affordable, meaningful and personalised undertaking services. These are all examples of Australian impact investment deals.

Here is a map of the Impact Investing ecosystem. It illustrates the interactions among the six identified stakeholder groups involved in impact investing in Australia – asset owners, product issuers, social enterprise support, governments, intermediaries, and peak and industry bodies.

In line with global trends, Australia’s impact investing market has grown rapidly in recent years. RIIA’s Benchmarking Impact 201820, a snapshot of impact investing activity from June 2015 to December 2017 across 24 organisations, shows:

    • the impact investing market in Australia is growing and there is a diversity of investable products, investment strategies, and types of impact being measured;
    • the market has quadrupled during the period to reach $5.8 billion in investor commitments across 51 wholesale and retail products;
    • 143% growth over the past year alone, with forecasts indicating that by 2022 the Australian impact investing market will reach $33 billion;
    • growth is driven largely by the increase in green bonds (accounting for $4.9 billion of the data set); and
    • other types of impact investment products (including social impact bonds, private debt and investments in property) have also grown from $300 million to $1 billion over the period.
Figure 1.14source RIAA's Benchmarking Impact: Australian impact investment activity and performance report 2018
Figure 1.15The data set in figure X includes $4.9 billion of green bonds (or 84% of products by dollar weighting). Excluding the 14 green bonds, the aggregate product value for the remaining 37 products is $948 million, which is a significant increase from $288 million at 30 June 2015. (Source: RIAA Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2018)

This growth corresponds with the sentiments reflected in Impact Investing Australia’s (IIA) 2016 Investor Report21, a survey of 123 Australian investors which demonstrated that Australian investors have a positive outlook for impact investing. 70% of respondents indicated they believe impact investing will become ‘most relevant’ in the next five years. The diagrams below present data extracted from IIA’S 2016 Investor Report, showing where impact investors are located, their motives for impact investing, and their preferred areas for investment.

Figure 1.16Australian impact investors’ locations, IIA’s 2016 Investor Report
Figure 1.17Snapshot of Australian impact investors: who they are; why they impact invest; the instruments they use; and the impact areas in which they prefer to invest, IIA’s 2016 Investor Report
Realising the potential of impact investing in Australia

It is incredible how quickly investing with a values and ethical filter is growing. Of course there will be challenges with various definitions of impact investing as well as the integrity of products and intentions, but nonetheless, the direction of the capital markets has been set, and it is heading in the direction of impact investing. That makes me so optimistic, but I am still impatient and want it to happen even faster.

Dany Almagor, Small Giants


This is an exciting time for impact investing in Australia. Evidence suggests that the Australian market is at an inflection point, and that now is the time to focus on market building in Australia.22

As more players enter the market, and new collaborations diversify impact investment opportunities, Australians are set to realise the many benefits of a growing and maturing impact investment space. The market does remain, however, challenged in terms of scale, availability of data, flow of information and infrastructure.23 Building the pipeline of investable deals is critical to growing the market.24

The Australian Advisory Board on Impact Investing (AABII) note that scaling will require a concerted effort from all stakeholders, with efforts directed to:

  • providing additional early stage support for investable enterprises;
  • mobilising more blended finance and concessionary return capital;
  • executing more high quality deals;
  • increasing mainstream awareness of impact investing;
  • educating investors about opportunities in the space; and
  • learning how to design for scale and replicate good ideas.25  

IIA and RIAA comment that government can play a greater enabling role to develop impact investing through different mechanisms, including supportive regulatory frameworks, incentives and funding for initiatives which address financing gaps for seed and early stage ventures, building the capacity of impact investing intermediaries26, and investing to reduce risks and enhance investor confidence.27 

IIA is also currently working with AABII and a number of key industry stakeholders to try to establish a new and independent financial institution – Impact Capital Australia (ICA) – to accelerate development of impact investing in Australia. ICA would be mandated to encourage and support existing and new participants in the impact investing market.28

Recent developments in the space show that concerted effort from key players, coupled with government support, is paving the way for stronger growth. Federal and State governments are playing catalysing roles, with the Federal Government recently committing a further $30 million toward developing the Australian social impact investing  market. Of this, $8 million will establish a Social Impact Investment Readiness Fund that will help build the capacity of social enterprises and not-for-profit to develop impact investment-ready deals.29

In addition, the Federal Government has announced a $40 million Emerging Markets Impact Investment Fund (EMIIF) that aims to address the financing gap for SMEs in the region.30 Indigenous Business Australia has also recently injected $50 million into impact funds supporting Indigenous communities.31 

Other market building initiatives include the launch of the Impact Investing Hub in late 2017. This, Australia’s first impact deals listing, connects impact investors with opportunities in the Australian impact investing market. The Hub’s aim is to support the growth of the Australian impact investment sector by improving access to information about Australian impact investing deals and the market, and by helping connect investors with investment opportunities.

  1. http://www.socialimpactinvestment.org/about.php
  2. About Impact Investing, Global Impact Investing Network <https://thegiin.org/impact-investing/need-to-know/#s1>
  3. Sean Greene, The Case Foundation, A Short Guide to Impact Investing, 2
  4. Global Impact Investing Network, ‘Annual Impact Investor Survey 2017’ (Report, May 2017)
  5. Ibrahim AlHusseini, ‘10 Reasons Why You Should Consider Impact Investing’ (13 April 2017) Forbes <https://www.forbes.com/sites/forbesfinancecouncil/2017/04/13/10-reasons-why-you-should-consider-impact-investing/#43847c2f7a11>
  6. Peter Berliner and Vicki Spruill, ‘Community Foundation Field Guide to Impact Investing: Reflections from the field and resources for moving forward’ (Report, Mission Investors Exchange, 2013) 15, available at <https://missioninvestors.org/resources/community-foundation-field-guide-impact-investing>.
  7. Anna Oleksiak, Alex Nicholls, & Jed Emerson, Impact Investing: A market in evolution, ‘Social Finance’, Oxford University Press, 2015 at 22
  8. Anne Field, ‘MythBusters: Further Proof that Impact Investments Reap Healthy Returns’, Forbes, 26 November 2017, <https://www.forbes.com/sites/annefield/2017/11/26/mythbusters-further-proof-that-impact-investments-reap-healthy-returns/#2ceacb78673e>.
  9. Global Impact Investment Network, Annual Impact Investor Survey 2018.
  10. Global Impact Investment Network, Annual Impact Investor Survey 2018.
  11. Kylie Charlton et al., ‘Impact Investments: Perspectives for Australian charitable trusts and foundations’ (Report, The University of Sydney Business School, March 2014) 5.
  12. Global Impact Investing Network, ‘Annual Impact Investor Survey 2018’ (Report, June 2019)
  13. Regina Hill and Rosemary Addis, Views from the impact investing playing field in Australian on what’s happening and what’s needed next (December 2017), Australian Advisory Board on Impact Investing, 1.
  14. ImpactAplha, ‘Impact Investing: Year in Review’, December 2017
  15. Jean Case, ‘Fueling the Momentum of Impact Investing’ (28 February 2017) Stanford Social Innovation Review <https://ssir.org/articles/entry/fueling_the_momentum_of_impact_investing>.
  16. Morgan Stanley Institute for Sustainable Investing ‘Sustainable Signals: new data from the individual investor’ 2017
  17. U.S. Trust Bank of America Private Wealth Management, 2016 U.S. Trust Insights On Wealth and Worth, 11.
  18. Jonathan Godsall and Aditya Sanghvi, ‘How impact investing can reach the mainstream’ McKinsey & Company, November 2016
  19. Global Impact Investing Network, Achieving the Sustainable Development Goals: The role of impact investing, 2016
  20. Responsible Investment Association Australasia ‘Benchmarking Impact: Australian Impact Investment Activity and Performance Report’ (Report, 2018) 21.
  21. Impact Investing Australia, ‘Impact Investment: Pre-Budget Submission 2017-18’ January 2017, 3.
  22. Impact Investing Australia, ‘Impact Investment: Pre-Budget Submission 2017-18’ January 2017, 3.
  23. Impact Investing Australia, ‘Impact Investment: Pre-Budget Submission 2017-18’ January 2017, 3.
  24. Responsible Investment Association Australasia ‘Benchmarking Impact: Australian Impact Investment Activity and Performance Report’ 2018, 36.
  25. Regina Hill and Rosemary Addis, Views from the impact investing playing field in Australian on what’s happening and what’s needed next (Report, December 2017), Australian Advisory Board on Impact Investing, 7.
  26. Responsible Investment Association Australasia ‘Benchmarking Impact: Australian Impact Investment Activity and Performance Report’ 2018, 38.
  27. Impact Investing Australia, ‘Impact Investment: Pre-Budget Submission 2017-18’ January 2017, 3.
  28. http://www.impactcapital.com.au/
  29. Minter Ellison, Government’s vision for social impact investing (17 November 2017) <https://www.minterellison.com/articles/governments-vision-for-social-impact-investing>; Lina Caneva, ‘Commonwealth to Fund Social Impact Investing’ (10 May 2017) Australia Pro Bono Centre <https://probonoaustralia.com.au/news/2017/05/commonwealth-fund-social-impact-investing/>.
  30. Australian Government Department of Foreign Affairs and Trade, Emerging Markets Impact Investment Fund — Tender Now Open <http://dfat.gov.au/about-us/business-opportunities/tenders/Pages/emerging-markets-impact-investment-fund-tender.aspx>.
  31. Misa Hun, Indigenous Business Australia to launch $50m Indigenous impact fund (13 November 2017) Financial Review <http://www.afr.com/news/indigenous-business-australia-to-launch-50m-indigenous-impact-fund-20171109-gzhz01>.
Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.