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Types of Impact Investing: Across the Returns Continuum

Types of Impact Investing: Across the Returns Continuum
© Hyun Shin, Hanyang University

Investors have debated whether there is a trade-off between social impact and financial returns. Addressing this issue, the Omidyar Network published “Across the Returns Continuum” in the Winter 2017 issue of the Stanford Social Innovation Review.

Drawing on the Omidyar Network’s 12 years of experience and $1 billion of impact investing, this report presents a framework for analyzing social impact and financial returns. The framework includes a “returns continuum” that covers a spectrum of investment options, from fully commercial investments (financial returns only) at one end to fully philanthropic grants (social impact only) at the other. In the Omidyar Network’s own words:

As a philanthropic investment firm, our intention has always been to support firms with the potential for significant social impact. At the beginning of our journey, our portfolio reflected our initial belief that only commercial-grade investments and nonprofit organizations were capable of such impact. But along the way, we identified something of a middle ground—subcommercial firms that have significant impact on the market in which they operate, by pioneering a new and innovative market, impacting public policy, or providing industry infrastructure. These firms—because of the populations they are trying to serve, or the countries in which they operate—often require more patience and upfront capital than commercial investors are willing to provide.

And so we expanded our investing framework to not only include fully commercial investments and grants, but also subcommercial investments that are intentionally pursuing significant market-level impact. “Across the Returns Continuum” provides an in-depth look at this continuum, offers examples of the type of investments made in each category (commercial, subcommercial, and grants), identifies the conditions under which we consider subcommercial opportunities, and explores what we’ve learned from the complexities we’ve encountered along the way.

Omidyar’s framework is a useful tool for categorizing diverse types of impact investing. Institutions such as Credit Suisse and Bridgespan have also created similar frameworks.

Credit Suisse

Credit Suisse

Bridgespan

Bridgespan

Credit: The Bridgespan Group

Please take a look at these frameworks and think about their similarities and differences.

© Hyun Shin, Hanyang University
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