G8 Report: Impact Investing Is the 'Invisible Heart' of Markets

Adam Smith wrote famously of the “invisible hand” that guides markets toward ends that -- wittingly or not -- are intended to be broadly beneficial for society as a whole. Much less widely recognized, and even less widely noted, are Smith's writings regarding the essential role governments play in restraining greed and our basest instincts by establishing the ethics and rules that regulate market practices and a set a level playing field for all who aspire to enter. A recent report from the G8 Social Impact Investment Task Force takes the anatomical metaphor one step further.

“The world is on the brink of a revolution in how we solve society’s toughest problems. The force capable of driving this revolution is ‘social impact investing,’ which harnesses entrepreneurship, innovation and capital to power social improvement.” So opens the introduction to Impact investment: The invisible heart of markets, a policy paper produced by the G8's Social Impact Investment Task Force, which the U.K. established in June 2013 as part of its tenure in the G8 presidency.

Impact investing, as defined by the G8 Social Impact Investment Task Force, encompasses those who invest to achieve environmental and broad social, as well as financial, benefit – and it's growing fast, the task force found. Broadly applicable in developing and developed countries, impact investing is already producing tangible benefits across a wide variety of areas, including reducing criminal recidivism, regenerating communities, broadening financial inclusion, and helping create affordable and supported housing, they highlight.

Doing good by doing good business

The G8 Social Impact Investment Task Force defines social impact investments as “those that intentionally target specific social objectives along with a financial return and measure the achievement of both.” That extends to investments that target the achievement of specific environmentally beneficial objectives as well.

In its report, the G8 Task Force quotes, and embraces, the beliefs of Pope Francis, who has ruffled the feathers of some of the world's super-rich and government elites by criticizing the rising economic, social and political inequality that has transpired in capitalist economies over the course of the last few decades:

“It is urgent that governments throughout the world commit themselves to developing an international framework capable of promoting a market of high impact investments and thus to combating an economy which excludes and discards.”

As the G8 Task Force pointedly notes, public trust in banks, financial institutions and governments was badly shaken in the wake of the near collapse of the U.S. banking system and seize-up of global markets in 2008-2009. Widespread application of impact investing principles, methods and tools, they contend, offers a means to not only jump-start sustainable growth that benefits society and the environment, but also to re-inject a stronger sense of ethics and responsibility into boardrooms, executive suites, and throughout business and government organizations.

Impact investment growth

Investments by the world's 125 leading impact investors will grow nearly 20 percent this year, according to the latest study by the Global Impact Investing Network (GIIN) and JPMorgan Chase. The G8 Task Force points out:

“Given that $45 trillion are in mainstream investment funds that have publicly committed to incorporate environmental, social and governance factors into their investment decisions, it would only need a small fraction of this money to start moving into impact investment for it to expand rapidly along the growth path to the mainstream previously taken by venture capital and private equity.”

Impact investing embraces the triple bottom line principles that have motivated and informed 3p from its inception, so we're enthused and encouraged as the concept of impact investing has gained momentum, credibility and legitimacy.

We've been following and reporting on the rise of impact investing. The G8 Task Force's study is a landmark, and may mark an inflection point that catalyzes faster growth in impact investing. We certainly hope so, and we hope to contribute to helping make it so.

Impact investment: The invisible heart of markets, is available free for download as an Adobe Acrobat document at the G8 Social Impact Investment Task Force website.

The G8 task force has also uploaded a video, “Social Impact Investment: Turn Your Money Into Real Change” on YouTube.

*Images credit: G8 Social Impact Investment Taskforce