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Global impact investing hit a major milestone when it surpassed $1 trillion in assets under management by year-end 2021, but a far more significant measure of the strategy’s maturation is the breadth of the impact ecosystem.
The range of investment themes—and the creative ways in which impact funds are accelerating change—have evolved significantly from primarily the environment and microfinancing to homing in on various social, governance, and even geopolitical issues, allowing values-based investors to be more focused and effective in the way they leverage their capital to bring about change.
ImpactAssets’ publicly accessible database of 163 impact funds, called IA 50, reflects the profound change in what it can mean to invest with impact these days. The database, updated in March, shows 18 funds focusing on racial equality and racial justice, 46 on job creation and workforce development, and 42 on diversity, equity, and inclusion. Five years ago, none of the funds listed these themes as a focus.
“We’ve seen new impact themes emerge and grow in popularity,” says Margret Trilli, chief executive officer and chief investment officer of Impact-Assets in Bethesda, Md. “We’ve also seen a decline in the number of funds focused on diversified or broad impact themes, and a shift toward more focused impact themes.”
Among newer funds centered on advancing employment opportunities, for instance, is Boston-based Jobs for the Future’s $11 million JFF Impact Fund, which aims to elevate workforce and educational opportunities to make economic advancement feasible for low-income and lower-skilled U.S. adults. The fund includes companies such as Honest Jobs, a job marketplace for people with criminal records, and NextStep, which provides tuition-free training for nursing assistants who seek new roles after being displaced by automation and artificial intelligence.
Clearly defined impact targets aren’t only based on topical themes, but communities and geographic areas. VamosVentures Fund 1 is a $50 million venture capital fund investing in early-stage companies founded by primarily Latino entrepreneurs to elevate health, wellness, and employment opportunities. The $30 million Afrishela Investment Fund channels capital to improve leadership opportunities, jobs, and income equality for women and girls in Africa.
Some funds are tying their compensation structures to their success in creating impact. At $85 million Toronto-based New Market Funds, performance pay is tied to measurable impact in creating low-emission new or retro-fitted affordable housing, says managing partner Garth Davis. “If we don’t deliver on the impact performance—which is what we promise— we don’t get any carried interest.”
While there has been a surge in capital to the impact ecosystem, it is still in its early days especially when viewed on social themes, says Matt Petersen, president and CEO of Los Angeles Cleantech Incubator. “There’s been a huge surge of capital, with high-net-worth and institutional players entering the space. But when it comes to access to capital for females and underrepresented founders, there’s a long way to go,” Petersen says. “The bias in our networks is real.”
LACI launched the $8 million Cleantech Debt Fund in 2022 to provide start-up capital to entrepreneurs with no personal collateral or credit score requirement. The fund is geared toward women, Black, and brown entrepreneurs, Petersen says.
“One trillion in impact investing is a great start. But we won’t celebrate until 50% of investor-owned firms are owned by women and people of color,” says Daryn Dodson, founder and managing director of Illumen. “The future generation is pointing their capital more in this direction. This should lead to an important shift to impact themes as intergenerational wealth is transferred.”
This story originally appeared in the June 2023 issue of Penta magazine.
Geopolitics, Racial Justice: Impact Investing Is Expanding Its Reach
