Impact Investing: A Spectrum

By Michelle Zhang

Impact investing was introduced to me as a part of a spectrum—the spectrum of funding sources for social problems. On one end are social issues that should be addressed with philanthropic dollars and can’t make financial returns at the moment — for example, building better primary and secondary education infrastructure in developing countries requires public funding and large amounts of charitable donations. On the other end of the social problem spectrum are those which have become mainstream and therefore have access to mainstream sources of funding — good example of this is solar energy, which has become very popular and lucrative. Solar panel companies are raising millions in venture capital and private equity funding before going public. I see impact investing somewhere in the middle of this spectrum. Impact investing dollars are targeted at social issues that show promise for financial returns that aren’t quite high enough to attract mainstream investors (although this is rapidly changing).

Every social problem has a place on this spectrum, and there is real danger when entrepreneurs or investors try to push a problem farther up than it belongs. This can produce exploitive business models, flat out bubbles, or make empty promises to consumers. As much as social enterprises try to make the world a better place, we must take our time and address each issue with the care and attention they deserve.