A new generation of entrepreneurs is reshaping how we think about the role of business in solving our most urgent social problems. These entrepreneurs, domestic and global, seek both profit and social or environmental impact. Their blended missions can blur the traditional division between for-profit and nonprofit enterprises, between commercial investment markets and their philanthropic counterparts. It’s a quiet revolution in the making.

The transformation has reached school cafeterias. Concerned about epidemic childhood obesity⁴ and mounting evidence that school lunches share part of the blame,^5,6,7 two business school friends (and moms) decided to start a company to provide nutritious lunches to school kids across America. Kristin Richmond and Kirsten Tobey launched Revolution Foods in 2006 with mixed financing from a diverse range of sources, including both impact investors and private venture capital firms.⁸ Today, Revolution Foods has contracts with school districts in 27 cities across 11 states, and provides 1 million healthy meals each week to school children, 75 percent of whom are low-income.⁹ The firm has been listed by Fast Company and Inc. magazines as one of the nation’s fastest-growing and most innovative companies.¹⁰

Half a world away, US-born entrepreneurs Nikhil Jaisinghani and Brian Shaad struggled with a different problem: over 400 million people in India lack access to electricity, a critical need to boost economic growth, improve health, and advance education. That inspired Jaisinghani and Shaad to found Mera Gao Power (MGP) to sell microgrids—solar powered small-scale electrical systems—whose up-front costs can be shared across a village, enabling households to buy energy at half the cost of kerosene.¹¹ USAID’s Development Innovation Ventures program awarded MGP a $300,000 grant, allowing the organization to reach 25,000 people in 222 villages across Uttar Pradesh in northern India—and to become profitable. After proving that their business model worked, MGP secured equity financing from Insitor Management, an impact investment firm, to fund further expansion.

Richmond, Tobey, Jaisinghani, and Shaad are four actors in a growing global movement—extending beyond entrepreneurs to include nonprofits, governments, and major corporations—that aims to marshal public and private resources to reshape where investors decide to place their capital and how we think about business.

This philosophical shift—the blending of purpose and financial reward—comes not a moment too soon. The magnitude of our most important problems eclipses the public and philanthropic resources currently allotted to combat them.¹² Government dollars will fall short of supporting our national interests, both at home and abroad—whether that means increasing employment, supporting global development, or improving education to boost our global competitiveness. Philanthropy, while growing, will not be sufficient to fill the gap. Fresh thinking, innovative funding approaches, and new financing models are needed to complement traditional systems. Enthusiasm to meet this challenge has galvanized investors, entrepreneurs, foundations, public-sector leaders, nonprofits, and intermediaries, who—under the banner of impact investing—are dedicated to targeting and tracking social or environmental value alongside financial return. Hundreds of fund managers, including those at the nation’s preeminent financial institutions, are raising capital in the impact investing field from high-net-worth individuals and pension funds alike.¹³ Giving Pledge members, some of our nation’s most successful entrepreneurs, described impact investing as “the hottest topic” at their 2012 meeting and are forming a community of practice among themselves to share lessons learned.¹⁴

This year, impact investors will channel billions of dollars to finance early childhood education, innovations in clean technology, financial services for the poor and struggling middle class, and other impact areas. Some of this investment is catalyzed by tax credits or regulatory mandates. Other investments are driven by forward-thinking policymakers embracing new investing tools that can augment traditional grant making—building on successful models in housing, infrastructure, and other sectors. Leveraging the scale and dynamism of markets, these public-private innovations can bring effectiveness, accountability, and scale to important services to complement public-sector commitments.

Impact investing is not a panacea. Private capital alone will not solve tough social problems. But impact investing can pave the way for more effective, proactive investment across the public and private sectors and help move talent and capital interested in both social and financial returns into the mainstream. In light of what we face as a nation, there is no excuse for leaving willing talent and capital sitting on the sidelines.