Monitor Research Report Explores Role of Philanthropy in Impact Investing

Because of the extreme challenges facing those who are pioneering new models for inclusive business, truly realizing the impact in impact investing will require more, not less, philanthropy, and will need that philanthropic support to be delivered in new ways. This is the key finding of the research report by Monitor Group and Acumen Fund titled 'From Blueprint to Scale: The Case for Philanthropy in Impact Investing'. There is growing interest in the role of market-based solutions in addressing the problems of poverty, through inclusive businesses that tap into the potential of the global poor as customers and suppliers—the so-called ‘fortune at the Base of the Pyramid (BoP).’ Encouraged by the growth of microfinance, many promising new models are emerging. This has elicited a rush to the new field of ‘impact investing’—producing social or environmental good as well as financial return—with hundreds of funds set up in just a few years and billions of dollars waiting to be invested.

But many investors report that they are struggling to find good opportunities in which to invest for impact. Meanwhile, philanthropic and aid funders are asking how they should engage with these market-based solutions.

How should they harness the full potential of this early experimentation? If impact capital is the key to scaling these solutions, what then is the role of philanthropy? Will impact investors really be able to take new models for inclusive business all the way from idea to scale?, these are some of the questions the report will answer.

Some recommendations from the report:

Recommendations for Philanthropic Funders

1. Consider moving into enterprise philanthropy through a range of approaches

More enterprise philanthropy is needed but there is a spectrum of potential approaches. Funders could support nonprofits or for-profits, and could deploy grant funding independently of, or in conjunction with, investor capital.

2. Create and back new specialist intermediaries

To connect mainstream donors to the practice of enterprise philanthropy, interested funders should support the creation of new intermediaries for enterprise philanthropy.

3. Embrace risk and acknowledge failures

This is an inherently risky endeavor; enterprise philanthropists must take risks with new models and markets, and be open about their experiences of failure as well as of success.

4. Expand perspective to encompass markets and ecosystems

Unlike investors, philanthropic funders are uniquely placed to take a broad perspective and work across various points of the social capital market and ecosystem.

Recommendations for Impact Investors:

5. Collaborate with funders on new models and markets

Impact investors can work with enterprise philanthropists; clear communication of investment criteria would help guide early-stage pioneer firms – and their philanthropic supporters – to move towards investability.

6. Align investment strategies with aims and expectations

Pursuing new business models to tackle the toughest problems affecting the poorest communities will not generate high risk-adjusted returns. Impact investors should be consistent in making trade-offs, and honest in communicating their expectations.

Click here to read and download the report.