Impact investing is often described as investing for both financial return and positive impact.
Does the industry actually think of impact in terms of welfare, though?
In fields like global health and development economics, welfare is the core objective, measured in terms of how much people’s lives improve, i.e.,
• health outcomes (e.g. DALYs averted)
• income gains
• quality of life improvements
Institutions like the World Health Organization and evaluators like GiveWell explicitly optimise for these outcomes. The goal is clear: maximise wellbeing per dollar spent.
Impact investing takes a different approach. Most funds optimise for:
• risk-adjusted financial returns
• scalable business models
• measurable (and reportable) impact
Frameworks promoted by the Global Impact Investing Network have helped standardise impact reporting, but largely around:
• outputs (e.g., customers reached)
• activity metrics (e.g., loans disbursed)
These are useful. But not quite the same as welfare.
To be fair, welfare thinking isn’t absent. It shows up in:
• health-focused funds tracking outcomes like mortality or morbidity
• climate funds using carbon pricing to estimate social value
• emerging interest in cost-effectiveness and “impact per dollar.”
But these are still the exception. In most cases, welfare is implied rather than measured.
There are a few reasons why this gap exists:
• Welfare metrics are harder to estimate
• Attribution is more complex in market-based models
• LPs rarely require welfare-adjusted reporting
• Output metrics are easier to standardise across portfolios
As the field matures, there’s an opportunity to move closer to welfare-based thinking and strengthening the link from capital → outcomes → real improvements in wellbeing.
