What exactly is impact investing? Amit Bouri aims to thwart wolves in sheep's clothing in this $502 billion market

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Impact investing is having a moment.

On one end, the headlines can't get enough of Bill McGlashan, the disgraced dealmaker charged last month with conspiracy to commit fraud by bribing a college-admissions counselor. McGlashan co-founded and ran the world's largest impact investing pool, the $2 billion Rise Fund, which counts among its holdings several companies focused on expanding access to education.

On the other end, the number of impact investment managers and the volume of money allocated to the industry continues to rise — and fast. The Global Impact Investing Network, a nonprofit organization unaffiliated with any individual investment manager, estimates that more than 1,340 organizations now manage $502 billion in impact investment assets worldwide, according to a report published this week.

Read more: How the market for impact investing could go from billions to trillions

But, what exactly is 'impact investing'? If the market is to grow responsibly, all of its participants — asset managers, capital allocators, data and measurement providers, and more — should share a frame of reference, according to Amit Bouri, the Global Impact Investing Network's co-founder and CEO. That's why the GIIN decided to dive head-first into establishing such a framework.

I sat down with Bouri this week to discuss the results of that effort. Below are excerpts from the conversation.

Why was now the time to establish what you're calling the 'core characteristics of impact investing'?

We've seen booming interest in impact investing all around the world. One thing that has been absolutely clear everywhere I go is that more and more mainstream institutional investors are interested in getting involved in impact investing. We're also seeing a lot of interest coming from family offices.

One thing that we've heard loud and clear from all of these potential new entrants into the market is that they want a clear understanding of how to do impact investing, and how to do it right. So we took it upon ourselves to help provide stronger terms of engagement for impact investing and really give investors a sense of the best practices that would constitute effective impact investing.

So what are the characteristics?

There are four practices that we believe define impact investing:

1. Intentionality: Impact investing is marked by an intentional desire to contribute to measurable social or environmental benefit. Impact investors aim to solve problems and address opportunities. This is at the heart of what differentiates impact investing from other investment approaches which may incorporate impact considerations.
2. Use evidence and impact data in investment design: Investments cannot be designed on hunches, and impact investing needs to use evidence and data where available to drive intelligent investment design that will be useful in contributing to social and environmental benefits.
3. Manage impact performance: Impact investing comes with a specific intention and necessitates that investments be managed toward that intention. This includes having feedback loops in place and communicating performance information to support others in the investment chain to manage toward impact.
4. Contribute to the growth of the industry: Investors with credible impact investing practices use shared industry terms, conventions, and indicators for describing their impact strategies, goals, and performance. They also share learnings where possible to enable others to learn from their experience as to what actually contributes to social and environmental benefit.

What was the process in creating the characteristics?

We did this through consultation with many leading impact investors around the world and combined that with our own expertise and global perspective at the GIIN. And we vetted the characteristics throughout our network. That also had the effect of creating buy-in among the practitioners that are active in the market.

What's your intention with this new framework?

We really brought the core characteristics to market with two motivations.

One is that we want to draw more investors into impact investing and to ensure that the growth that is happening is growth with integrity. And the other piece that motivated us is this focus on integrity. There is so much interest in impact investing now that there is a real risk of people applying the wrong practices and calling it impact investing. So we wanted to help create clearer definitions of what would constitute effective impact investing to help mitigate any risk of dilution in the integrity of what it means to be an impact investor.

We've also designed the core characteristics in a way that will allow investors to use them to hold themselves and to hold one another accountable. So it's our belief and our hope that the market mechanisms will help reinforce the characteristics.

What's your take on the new impact investing framework? Weigh in below.