Milestone Events that Defined and Shaped Impact Investing

Image Credit: Pxhere

Impact investing as a term was coined not so long ago, back in 2008, but the seeds of impact investing stretched far before that. We need to go back to the middle of last century, when the world was in ruin from the worst war ever waged by the human race, the nuclear arms race was just beginning, and nobody was thinking that capital can be deployed in poor countries in Asia or Africa, let alone in the remotest corners of these countries like what have been achieved by the impact investing community of today.

There are many events that influence how impact investing has come to be, but here I choose 14 key events that have the most profound impact to the sector. They are mainly signifying the milestones of how capital is slowly marching and pushing the envelopes geographically as well as ideologically, and of how capital can be used as a tool to improve livelihood and mitigate the impact of climate change to human lives.

1. Formation of CDC (1948)

We could have gone back to much earlier times at any point in the evolution of capitalism, but I pick this unremarkable moment as a starting point. CDC Group (Commonwealth — previously “Colonial” Development Corporation) today manages USD 5.5. bn of assets and is one of the largest among DFIs (Development Finance Institutions), each of them affiliated with governments of developed countries, that engage with private sector development in the emerging markets. CDC was the first of its kind and paved ways for others to be formed as well.

2. Formation of IFC (1956)

IFC (International Finance Corporation), the private sector arm of the World Bank, is today the largest and the most influential DFI. IFC investment code and environmental, health, and safety guidelines have become the industry standards. As the largest DFI, it has its fair share of criticism, but impact investing as we know today might not exist without IFC as one of its pillars. IFC and other DFIs were the first investors in impact funds in early 2000s and, with USD 18 bn in annual commitments, still constitute the majority of the source of fund for impact investing globally.

3. First Venture Capital Firm: ARDC (1950s)

ARDC (American Research and Development Corporation) was founded in 1946 by Georges Doriot, a Harvard Professor.The milestone event was its USD 70,000 investment in DEC (Digital Equipment Corporation) in 1957 that eventually returned more than 500x of its invested capital. ARDC is the precursor to all tech VCs today, and consequently also to most impact investors who invest through VC-style vehicles.

4. Rise of SRI (1980s)

SRI (Socially Responsible Investing) is a concept where capital should not be deployed solely on basis of risks and returns, but also through the lens of politics, social, and environmental concerns. It is credited for helping bringing down the apartheid government of South Africa by depriving the country of foreign capital. By the turn of the 21st century, SRI has evolved from cause-specific campaigns into “ESG” (Environmental-Social-Governance) investing standard, outlining criteria for the sectors and types of investments suitable for socially conscious investors.

5. Launch of Ashoka (1981)

Social entrepreneurship really came into picture when McKinsey alum Bill Drayton founded Ashoka: Innovators for the Public in 1981. Ashoka identifies leading social entrepreneurs, later called “Ashoka Fellows”, with solutions to social problems who seek to make large-scale changes to society. Today, it is affiliated with more than 2,800 Ashoka Fellows, in more than 70 countries.

6. Proliferation of Private Equity Funds in Emerging Markets (1990s)

After the fall of the Berlin Wall, end of the Cold War, and rapid ascent of neoliberalism, Western money was set loose, looking for opportunities in markets previously not opened to them in Eastern Europe and the “Third World”. PE funds from the Western world started to make the move, quickly followed by homegrown managers (with foreign capital) based on developing countries like Abraaj Capital, Hony Capital, or Northstar Group. Today, each major developing country would have a few homegrown PE funds of its own, with some already venturing into the impact space.

7. Birth of Venture Philanthropy (1997)

The idea has been percolating since 1960s, but the seminal Harvard Business Review article about venture philanthropy, as well as the influential Soros Economic Development Fund, came up in 1997. Other prominent VP organizations like Omidyar Network and LGT VP came a bit later in 2004 and 2007. Today there are many small family foundations who organized themselves into network organizations like AVPN (Asian Venture Philanthropy Network) that actively making impact investments either directly or through intermediary vehicles.

8. Emergence of Impact Investment Firms (early 2000s)

In the wake of the dot com crash in the tech investing world, both Acumen Fund and Aavishkaar Capital were starting in 2001 as probably the first impact funds with focus on equity investment. Impact lenders followed suit with the formation of BlueOrchard and responsAbility, both initially focusing in financing the nascent microfinance sector.

9. Publication of “Fortune at the Bottom of the Pyramid” (2004)

The idea from this book was novel at that time, as very few people would think it would be profitable to do business with those who earn less than two dollars a day. It also popularized the term “BoP” brings excitement and inspirations to many philanthropists and impact investors today. The book itself is not that remarkable hence I do not recommend to read it today (the author CK Prahalad passed away in 2010 so he did not have the opportunity to improve the content) and it does not really focus on the point of impact investment, but it was revolutionary at that time and worth a mention here.

10. Dr. Muhammad Yunus and GrameenBank was Awarded the Nobel Peace Prize (2006)

The award rightfully brought Dr. Yunus and GrameenBank to stardom and cement microfinance’s reputation as a scalable and profitable business model that can attract both impact and mainstream capital.

11. IPO of Banco Compartamos (2007)

It was the first and also the most controversial IPO of microfinance companies. The IPO was commercially successful, giving an average IRR (Internal Rate of Return) of 52% to their investors, but also a prominent example of “mission drift” as they continue to charge very high annualized interest rates to their clients and face highly polarized opinions in the microfinance industry.

12. Formation of UK’s Big Society Capital (2012)

BSC was the first social investment institution of its kind, focusing on domestic social enterprises, and funded by money collected from dormant bank accounts, state lottery, and four of the main UK banks. No other countries have managed to pull out similar state-sponsored institutions as UK and its BSC.

13. Launch of The First US Impact Bond by Goldman Sachs (2012)

In 2012, in partnership with the City of New York and Bloomberg Philanthropies, Goldman Sachs finances the first social impact bond in the United States, a USD 9.6 million loan aimed at reducing the rate of recidivism among adolescents incarcerated on Rikers Island. The amount is not very large, and it was also not the first of its kind (Peterborough Prison’s SIB in the UK was first in 2011), but it is certainly the most famous.

14. The Rise Fund by TPG (2016)

TPG Rise was created by the prominent PE firm TPG in partnership with U2’s Bono and Jeff Skoll of eBay, with USD 2.1 bn of assets. It sparked the trend of mainstream PE houses embracing impact investing, with Bain Capital, KKR, Apollo, Blackstone, and Morgan Stanley launching or planning to launch their own impact funds.


There are a flurry of activities happening that continue to shape the sector. NGOs like Rare and ICCO are raising and spinning off impact funds with the Meloy Fund and C4D Partners, respectively. ADB (Asian Development Bank) just launched an impact fund called ADB Venture, its main feature is having a 17-year fund life (other impact funds, like typical mainstream private equity funds, usually have 10-year life) enabling it to be an even more patient kind of capital. In India, a social stock exchange has been proposed and now being brought to reality.

Despite all the rapid progress in the past 20 years, the sector is still at its early stage. Collectively, we are still grappling with finding the best way to support companies in the remote areas with no ecosystem support and risky products like agriculture, nor that we know how to tackle the complexity of providing affordable healthcare and education to the poor. If we can get more capital commitment, invent innovative financial structures, share new ideas and lessons learned, listen more to the poor and their ideas, and support more grassroot entrepreneurs, the impact investing sector will be able to contribute so much more to make the world a better place for everyone.

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