Anyone who thinks that making money while making a difference is nothing but a pipe dream should think again.

Private impact investment funds that pursue social impact objectives — particularly private equity and venture capital funds — have recorded positive financial returns within about 1 percent of funds that put financial gain first, according to a new report (PDF) by global investment advisor Cambridge Associates and the Global Impact Investing Network.

“The data shows that market-rate returns are achievable in impact investing,” Hannah Schiff, senior research associate at the GIIN, told GreenBiz. “Impact investing could be a great way for companies to create positive changes in society and the environment while still producing financial returns.”

GIIN, a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing, defines impact investing as “investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return.” These can be made in “both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances.”

The Impact Investing Benchmark is the first comprehensive analysis of the financial performance of private impact investments, its creators say.

The benchmark includes 51 private investment funds of vintage years 1998 to 2010 that “have the specific objective to create positive, measurable social impact and to produce risk-adjusted, market-rate financial returns.” The funds focus on social impact objectives such as financial inclusion, economic development and education.

To put things in perspective, the survey measures the benchmark against a comparative universe of 705 funds with no social impact objective in the same industries, geographies and asset classes and of the same vintage years.

The data are encouraging to proponents of impact investing — together the diverse array of funds in the Benchmark posted a net internal rate of return of 6.9 percent, as of June 2014. A comparative universe of private investment funds with no social impact objectives and with the same vintage years returned 8.1 percent.

Measuring 'good'

If it sounds difficult to quantify a qualitative idea such as “social good,” that's because it is.

The funds in the study all have the key characteristics of impact investment funds as defined by GIIN: demonstrated intention to generate positive, measurable social and/or environmental impact alongside financial returns.

Investors define and measure the impact they seek in a variety of ways, from quality jobs created to low-income customers provided access to affordable health or education services.

Recognizing the importance of impact measurement to impact investing, GIIN maintains an IRIS metrics catalog — a library of generally accepted metrics to measure the social, environmental and financial performance of investments — to support investors as they develop their impact measurement strategy.

The next step is refining the data included in the benchmark to pinpoint key characteristics of successful investments.

At this point, the benchmark does not have enough data to segment and analyze returns by sector, stage of business or other important variables. Currently, it includes only private equity impact investments with a social focus, which is only a portion of the impact investing market.

“We continue to encourage funds to submit their data so that we can build a more robust data set, which will allow us to conduct further analysis in the future,” Schiff said.

Proof positive

The idea that investing “for good” can elicit environmental and social benefits alongside financial ones is a pillar of sustainable business. Although it’s tough to say exactly how much impact capital has been deployed in recent years, it’s safe to say that there’s been an upward trend.

In 2014, $46 billion in impact investments were under management, according to a survey (PDF) of 125 major fund managers, foundations, and development finance institutions by J.P. Morgan and GIIN. This was nearly a 20 percent increase from the previous year.

The market for conservation impact investing, which focuses on generating profit while driving positive impact on natural resources and ecosystems, grew to $23 billion from 2009 to 2013. That figure is expected to increase to $37.1 billion over the next five years, according to a 2014 report by the Nature Conservancy’s NatureVest division and EKO Asset Management.

Despite impressive growth in recent years, impact investmenting still represent a tiny 0.02 percent of the $210 trillion in global financial markets. But analysts at J.P. Morgan claim impact investing one day could become a trillion-dollar industry.

“We’ve seen a lot of investors who are very interested in impact investing, but have been waiting for concrete data on financial performance before entering the space,” Schiff said. “This study is the first step to provide this important information, and we expect it will encourage more investors to include impact investments in their portfolios.”

In order to realize the full strength of private capital to address major social and environmental challenges may require some help from the public sector in the form of more “intentional and proactive” partnerships, the U.S. National Advisory Board on Impact Investing claimed in a 2014 report.

This will require the removal of regulatory barriers that stand in the way, such as those governing foundation investments in for-profit enterprises. Also critical are new incentives to lure private capital.

Whatever the route, it seems that impact investing's stock is set to rise.