Prioritising Impact: Do I want you in my sandbox?

In this debate, two ‘teams’ took opposing (and in some cases deliberately exaggerated) positions to explore how we could resolve the tensions between investors with very different motivations and viewpoints – those focused on philanthropic (“impact first”) and commercial (“finance first”) capital. 

As we consider how to harness the vast amount of capital required to solve the big social and environmental challenges facing the world today, is it commercial or philanthropic capital that will make the difference? And as more mainstream funds come into the ‘impact investing’ space, who is subsidising who – and who should take the biggest risk?

Speaking in favour of the role of commercial capital, Shamez Alibhai, head of the Cheyne Social Property Impact Fund, said: “We have problems at scale that have been getting worse for generations, so we need solutions at scale. There isn’t enough philanthropic capital or government money, so we need a way of leveraging the huge amounts in pension savings and other commercial investments.”

However, taking a role in the debate to defend philanthropy, Chris West, partner at philanthropic advisory firm Sumerian Partners, pointed out that charities and social enterprises tackling the most entrenched social problems often had high-cost models with low margins and that the market was fragile and slow-growing. “This market needs long-term support in the form of grants or patient capital that reflects their actual growth trajectory,” he said. 

The participants highlighted a number of issues that divided the two approaches to investment. 

Holly Piper, head of CAF Venturesome, warned people not to devalue the role of philanthropic capital in their quest to leverage more commercial capital into the impact investment market. Commercial capital had its limitations too, several participants pointed out. For example, start-ups in the USA’s Silicon Valley were backed by public sector and government money for many years before venture capital entered to help them scale up. In the same way, Alibhai said: “There is the potential to use philanthropic capital as a way of proving new ideas, throwing them to the wind. Then private capital can really help them grow.”

From the audience, the chief executive of one UK social investor countered that the Silicon Valley analogy was useful, but “what’s not useful when talking about this sector is that none of these businesses will ever become the next Apple, they will never have 30% profit margins”. Others agreed, highlighting that well-known social enterprises that had successfully grown, such as The Big Issue, had benefited from large amounts of patient capital backing them before they took on any type of investment. 

Commercial capital had advantages too though, the audience recognised. It outpaced philanthropic organisations in its decision-making and – although sometimes it could be expensive – had a set of incentives attached to it, ensuring results.

The participants spent some time drawing up some guiding principles for using commercial and philanthropic capital, emphasising their distinct, but potentially complementary roles. Principles for using commercial capital included:

Embedding good governance in all investee organisations

Working for “fair returns” on capital (rather than outsized or subsidised)

Seeking to understand areas of likely tension when making an investment into a social organisation

Principles of using philanthropic capital included:

“Leaving every organisation stronger” – repaying social investment should be an indication that investee organisations are stronger and better able to deliver impact

Risk-taking – philanthropic capital should be used to take higher financial risks


Using “rigour as well as emotion” in the investment decisions

The debate ended on a positive note, acknowledging that the level of understanding around ‘impact capital’ had grown considerably. Alibhai said: “In 2013, people didn’t understand impact capital. Now we are starting to see that shift. Insurance and pension funds are starting to ask for impact capital. I’m really optimistic that in the next three to five years, we are going to see more capital playing an impact role.”

Key actions:

Speaking after the event, Jessica Brown, of Barrow Cadbury Trust, said: “There is increasing recognition of the importance of the values that underpin different approaches to ‘impact first’ versus ‘finance first’ investing. It is important to be able to state what ‘impact’ means in social investment, and what values, principles and best practices investors should follow, otherwise we have a danger of ‘impact’ meaning nothing, or being simply the latest label being used to market mainstream financial funds.” 

Find out more:

Impact Strategies: How Investors Drive Social Impact. EVPA researched different approaches to ‘investing with impact’ and ‘investing for impact’, exploring different investors’ return expectations and risk appetite.

Members of the Global Impact Investing Network operate with five key values and guiding principles in mind.