What is Impact Investing and Why Is It Important?
Non-concessionary impact funds can help investors make a social impact without sacrificing return potential. Here’s why that matters.
What is Impact Investing and Why Is It Important?
Non-concessionary impact funds can help investors make a social impact without sacrificing return potential. Here’s why that matters.
Although it was first practiced in its modern form in the 1960s when Vietnam War protesters demanded that university endowments divest from defense contractors,1 impact investing didn’t begin to gain broader traction until the Rockefeller Foundation coined the term in 2007,2 inspired by the United Nations’ Principles for Responsible Investment (PRI) released the year prior.3
Impact investing has since become a $1.5 trillion industry, and the term has come to define investments that intentionally seek to generate both a financial return as well as a measurable social or environmental impact.4 Some examples of impact investments include attainable housing, renewable energy, healthcare infrastructure, water recycling, and microloans—though virtually any endeavor concerned with more than just financial impact alone can be considered an impact investment.
What are the elements of impact investing?
Specifically, impact investing involves four interconnected elements that guide how capital is deployed and what investments aim to achieve:5
1. Intentionality
Impact investments are deliberately focused on driving positive, measurable social and environmental outcomes. This sets impact investing apart from strategies that may only screen out negative factors or broadly consider ESG (Environmental, Social, and Governance) criteria without a specific impact goal in mind.
The DLP approach: All DLP Capital-sponsored funds help finance solutions to America’s affordable housing crisis through investments in attainable workforce housing.
2. Measurable impact
Impact investments should generate a measurable social and environmental impact. This focus on quantifiable results ensures transparency, aids in reporting, and helps track progress toward stated impact objectives.
The DLP approach: DLP Capital-sponsored funds invest in multifamily communities whose rents are measurably attainable, targeting rents that cost no more than 30% of the area median income (AMI).
3. Financial returns
In addition to driving positive social or environmental change, impact investments—unlike pure philanthropy or grantmaking—also aim to generate a financial return on capital. These returns can vary from below market rate to risk-adjusted market rate.
The DLP approach: In addition to impacting the lives of residents and their families, DLP Capital-sponsored funds target market-rate annual returns of up to 13% for accredited investors.
4. Applicable to a range of asset classes
Impact investing is not confined to a niche; it can be executed across various asset classes, including real estate, loans, stocks, and mutual funds.
The DLP approach: DLP Capital-sponsored funds take equity, preferred equity, mezzanine debt, and senior debt positions in multifamily housing communities.
What types of impact investing are there?
Impact investing can be thought of as the middle ground between traditional philanthropy, which is focused exclusively on impact, and traditional investing, which is concerned only with returns.6
At the cusp of impact investing is socially-responsible investing (SRI), an approach that aims to exclude investments that do not align with an investor's ethical or values-based criteria. True impact investing, however, goes beyond avoiding a negative impact and actively seeks to generate a positive one.
Source: ESG vs. SRI vs. Impact Investing. JustCoded. June 2021.
With this clarification in mind, there are three subtypes of impact investing:
Non-concessionary impact investing
This category of impact investing seeks to balance impact and return potential. Both objectives are held in equal importance, and neither is sacrificed in pursuit of the other.
Various studies have found that this approach is possible: social and financial impact are compatible, rather than competitive, with one another. In other words, impact investors can potentially achieve market-rate returns while making a difference.
Per the University of Chicago, there “is sufficient basis to believe that impact investing will not inherently perform better or worse than another kind of investment…an impact company might [even] produce higher returns on investment if it sells a product that fits its market well, or if it has unique distribution channels.”7
Non-concessionary impact investing is also overwhelmingly popular, with a Global Impact Investing Network (GIIN) survey of 305 investors finding that 74% targeted risk-adjusted, market-rate returns when making impact investments.8
Data source:
State of the Market 2024: Trends, Performance and Allocations. Global Impact Investing Network (GIIN). September 2024.
Concessionary impact investing
Concessionary impact investments aim to make an impact and generate financial returns, but the latter is deprioritized in favor of the investment’s social or environmental impact objectives.
One example would be making low-interest, below market rate microloans to rural entrepreneurs in developing countries. These loans can help lift individuals out of poverty (the social impact) while targeting a positive financial return for investors—though the returns from these loans would be lower than market-rate investments.
Venture philanthropy
Venture philanthropy applies principles of venture capital investing to the nonprofit sector. Venture philanthropists provide funding to small, unproven, or high-risk organizations while helping them grow and make an impact. Because the focus of venture philanthropy is primarily on social impact rather than returns, capital may be provided in the form of grants—which do not have to be repaid—or low- to no-interest loans.9
What distinguishes venture philanthropy from traditional philanthropy is that the former takes an active role in helping organizations build capacity and may sometimes seek some financial return. Meanwhile, the latter is usually characterized by a more hands-off approach to grantmaking and does not focus on financial returns at all.
DLP Capital’s non-concessionary approach to impact investing finances solutions to America’s affordable housing crisis while targeting market-rate annual returns of up to 13%.
Why is impact investing important?
Impact investing is important because capital can often be the bottleneck for many projects that have the potential to benefit society. By considering both financial and social or environmental goals, impact investors help allocate capital towards potential solutions to pressing global challenges, including housing affordability, economic inequality, child development, and healthcare.
Impact investing is also a powerful way for investors to align their financial goals with their values by contributing to tangible improvements in people's lives. In particular, unique approaches like non-concessionary impact investing recognize that there is no inherent tradeoff between making an impact and targeting financial returns. When carefully selected, investments have the potential to yield both financial success and broader significance.
DLP Capital-sponsored funds are making a tangible and measurable impact on the lives of America’s working families while targeting returns of up to 13% for accredited investors.
FAQs
What is impact investing and why is it important?
Impact investing seeks to generate a measurable social or environmental impact along with a financial impact. Impact investing is important because it allocates capital to initiatives that work to address pressing challenges surrounding housing, healthcare, agriculture, energy, or equitable economic development.
What are the objectives of impact investment?
An impact investment has two objectives. First, it aims to deliver a measurable social or environmental impact. Second, it seeks to provide a financial return to investors. Some forms of impact investing may prioritize social impact above financial returns, while other forms may strive to achieve both objectives without subordinating one to the other.
What is the difference between ESG and impact investing?
ESG, which stands for "environmental, social, and governance,” is an investment approach that evaluates a company’s behavior as a corporate citizen alongside financial metrics. In other words, ESG is about how a company operates. On the other hand, impact investing is concerned with what a company does. This investment approach seeks a measurable social and environmental impact in addition to a financial impact.
What is another word for impact investing?
Another word for impact investing is socially responsible investing (SRI). Terms like ethical investing, double bottom line, and triple bottom line investing are also used interchangeably with impact investing.
What are the key characteristics of impact investing?
Key characteristics of impact investing include an intentional desire to make a positive impact, a focus on measurable social and environmental outcomes, and an expectation of financial returns.
1A History of Impact Investing. Investopedia. November 2024.
2Impact Investing: Definition, Types, and Examples. Investopedia. March 2025.
3What are the Principles for Responsible Investment? United Nations Principles for Responsible Investment (PRI). April 2006.
4Sizing the Impact Investing Market 2024. Global Impact Investing Network (GIIN). October 2024.
5What you need to know about impact investing. Global Impact Investing Network (GIIN). January 2025.
6ESG vs. SRI vs. Impact Investing. JustCoded. June 2021.
7Impact Investing Has Come of Age. Chicago Booth Review. November 2024.
8State of the Market 2024: Trends, Performance and Allocations. Global Impact Investing Network (GIIN). September 2024.
9Venture Philanthropy: Panacea or Snake Oil? Inter-American Development Bank. December 2007.
STATEMENTS ARE THOSE OF DLP CAPITAL ONLY AND ARE NOT GUARANTEED, NOR SHOULD SUCH STATEMENTS BE RELIED UPON. FORWARD-LOOKING STATEMENTS ARE EXPRESSIONS AND BELIEFS OF DLP CAPITAL AND SHOULD NOT BE RELIED UPON. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. NOTHING IN THIS IS A SOLICITATION OR OFFER OF SOLICITATION. ALL INVESTMENTS IN ANY DLP CAPITAL SPONSORED FUND ARE TO BE MADE AFTER A REVIEW OF THE PPM, OA, AND SUBSCRIPTION AGREEMENT. DLP CAPITAL IS NOT PROVIDING TAX ADVICE. CONSULT YOUR TAX AND LEGAL PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISIONS.
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