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Impact investing is the practice of investing in for-profit companies with the intention of generating both financial returns and social impact. The theory is that impact investing can increase the capital available to a company, allowing it to generate more positive social outcomes than would otherwise have occurred.

For impact investing to do good, it has to provide a company with more capital than it would have otherwise received. This is often difficult unless the investment is concessionary (sacrifices some level of financial return against the market rate), or takes place in a private market which other investors are unable or unwilling to invest in (Brest & Born 2015).

Further reading

Brest, Paul & Kelly Born. 2015. When can impact investing create real impact? Stanford social innovation review.
Lays out the conditions under which impact investing can make a difference.

Karnofsky, Holden. 2009. Acumen Fund and social enterprise investment.
GiveWell’s shallow investigation into impact investing.