The long-term future of impact investing is promising, but is still an open question, said Brian Trelstad at an April Social Impact Leadership Series talk hosted by Chicago Booth’s Social Enterprise Initiative.

Citing socially minded funds like London-based Bridges Ventures where he is a partner, Trelstad outlined rapid changes in the still nascent yet fast-growing field of impact investing.

He described a movement that includes insurance company Prudential Financial Inc. committing $1 billion to impact investing, individual investors seeking opportunities to mitigate climate risk, e-commerce website Etsy Inc. writing sustainable considerations into its operations strategy, and private equity firm Bain Capital LLC announcing a new social impact unit.

Trelstad, who is launching a Bridges presence in the US, said that the firm is carving out a niche as a lower middle market private equity firm that seeks to make an impact without sacrificing profit, a relatively new field of investors he called “return-first impact investors.”

He described the firm’s pioneering efforts to emphasize both returns and impact as a divergence from both “impact-first investors,” who prioritize impact over profits, and more traditional, fiduciary-focused investors. Before joining Bridges, he was chief investment officer of impact-first investment firm Acumen Fund, which invested in social enterprises in South Asia and Sub-Saharan Africa.

“How the group in the middle, the return-first impact investors, keeps the bar on impact high enough, is an open question of impact standards that needs to be resolved in the next decade,” he said.

Today, Bridges is looking for investment opportunities in areas like vocational training and home health care. With the quality of these services often lacking and a growing need, there is an opportunity to invest in high-impact, for-profit providers who are in need of capital to grow, he said.

“We use impact as a way to make investment decisions,” he said. “It’s built into Bridges’ first investment conversations while evaluating a company.”

How to measure that impact is “the big question,” Trelstad said. He said Bridges develops two or three performance indicators that are relevant to the company and achievable by the management team. For instance, a measure for an after-school program might be achievement gains among a targeted set of students.

In an effort to better evaluate and compare impact investment funds and strategies, Trelstad suggested that the industry move toward the creation of classes of impact funds to make it easier to benchmark against other similar funds.

“The benchmark is important,” he said. “Asset classes help us simplify assumptions about risk and return, liquidity and timing.”

He explained that it doesn’t make sense to compare someone who is creating jobs on the South Side of Chicago with somebody who is trying to improve jobs in factories in Bangladesh.  Similarly, while impact measurement continues to be important, it’s not a one-size-fits-all process, Trelstad maintained.

“I would propose we start talking about impact, not as an undifferentiated thing, but by comparing like types of impact: place-based strategies with place-based strategies or environmental products with environmental products.”—Deborah Ziff