On Thursday, an alliance of organizations, investors and entrepreneurs will launch ImpactPHL, an initiative to strengthen and grow the local impact economy. At the event, held at the offices of the Ben Franklin Technology Partners, the new coalition will unveil a study by the Economy League of Greater Philadelphia on the local impact economy. [Full Disclosure: Ajay Raju, a board member at The Philadelphia Citizen, helped fund the study.]

ImpactPHL builds on the significant work of investors, intermediaries, and small businesses throughout the region. This is a welcome effort promoted by capable institutions.

Two weeks ago my column focused on impact investing, noting its deep Philadelphia connections. Impact investing is a new phrase for describing a diversity of practices that intentionally integrate social and financial return considerations.

Whereas once social investment was largely driven by applying social screens to avoid certain products like tobacco, gambling, fossil fuels, and armaments, impact investing is more affirmative. Impact investors may use social screens to support particular corporate practices—transparency, hiring equity, environmental stewardship—or they invest directly into small businesses, community investment funds, and social enterprises that come with tangible social value along with a financial return.

As I noted in that piece, there is a rich history in America of building profitable, but not necessarily profit maximizing companies. Many of our early savings banks, building and loan associations, and the modern credit union movement had the dual purpose of social mission and economic viability.

Those early, often grassroots, credit institutions had diverse parentage: Religious institutions, ethnic associations, labor unions, business, and philanthropy. They had one foot in civil society and one foot in the market place. They involved all sectors of society from the poor to successful entrepreneurs.

The credit union movement in the U.S., for example, owes much to Edward Filene, who created Filene Department stores, and was also the most prolific supporter of cooperative credit institutions during his time. While Filene was supporting credit unions, one of the earliest private foundations in the United States—Russell Sage Foundation—was funding Remedial Loan Funds, designed to offer alternatives to high priced money lending.

Throughout the 20th Century, market-oriented institutions, often government chartered, that have an explicit public purpose, have supported social mobility and economic development. After all, there are and have been countless government sponsored enterprises that create liquidity for private capital, as well as thousands of authorities and quasi-public agencies that float infrastructure bonds, provide small business funds, and help finance affordable housing. In the context of this history, public and private are overly simplistic categories that do not take into account the shades of grey that define modern American capitalism.

During the past 30 years, the impact investment field has been defined by four practices and trends, in particular:

• Community development, characterized by lending and investment funds that specialize in local revitalization efforts and small business development.
• Corporate social responsibility, including globally accepted sustainability standards for environmental, social, and governance practices.
• Social enterprises, including social sector organizations and businesses that focus on some blend of market capacity, financial discipline, and social returns.
• High net worth investors in active pursuit of environmental and social returns as part of their investor portfolios.

The people and organizations that populate the impact field may come at it from different positions and often belong to different networks, but together they define the field and its increasingly robust capital capacity. If you want to understand the importance of the field, visit the websites of conventional wealth management firms and look for their impact investment services section. Some firms, like Goldman Sachs, have purchased specialized impact capital firms and integrated their expertise within their private wealth management group.

Given the limits of either the old style public welfare state or pure profit maximizing capitalism to solve critical social and environmental problems, blended value efforts like those in the impact space could become more important in the 21st century. As noted in the last column, the dramatic transfer of inter-generational wealth over the first half of this century may fuel the change.

One thing that will help ImpactPHL is a large institutional prime mover: A check writer, not a check receiver. In Chicago, MacArthur with its multi-billion dollar balance sheet, plays that role, using its capacity recently to launch an effort to draw in donor advised funds into Chicago neighborhood investing. Who will that be in Philadelphia?

But that will not happen unless the field figures out how to create more efficiency between the supply and demand for its capital. The disconnection between the supply of capital that wants both a financial and social return and the demand for that capital is a persistent problem. The disconnection has a variety of sources: information, systems for credentialing quality, social outcome measurements, and the misalignment of financial return expectations.

Thus there is a seeming paradox: From the perspective of investors, it appears that there is too much impact capital chasing too few impact investment opportunities. While from the perspective of social enterprises, it seems like there is a lack of capital to grow businesses, renew communities, and provide environmental solutions.  On their own terms they may both be correct.

Debra Schwartz, who runs impact investing at the MacArthur Foundation and is a leading thinker in the field, has articulated this disconnection as a problem of suitability and efficiency. On the one hand, she notes that we have to increase the suitability of investor capital so that it can be absorbed, and on the other hand we have to increase the ease and efficiency of making impact investments, so that capital on the sidelines can more easily get onto the playing field.

On the suitability side, many social enterprises require capital on terms (pricing, liquidity) that challenge the expectations of investors, some of whom think you can always maximize both financial and social returns. You often cannot. On the efficiency side, in order for investors and their advisors to make choices regarding impact investments, they need investment platforms that make investing more efficient and transparent.

The twin issues of suitability and efficiency are being worked on in a variety of ways today including some great new data and evaluation tools and the efficient wholesaling of investments with targeted applications. Like other fields, impact investing is trying to move from being a boutique enterprise to something that is more commodity-like, in order to catalyze broader capital markets.

These issues are relevant to the challenges of ImpactPHL. They will want to organize disparate efforts in ways that not only increase visibility but also increase the flow of capital. To do so they need to figure out how to help local capital that is on the sidelines enter into the funds and enterprises that need their support and can productively use the capital.

There certainly have been important examples in the region of organizing and attracting private capital including at Reinvestment Fund, PIDC, Ben Franklin Technology Partners, and many others. But the overwhelming amount of their private capital comes from depository institutions that have a regulatory incentive, the Community Reinvestment Act, to do so.

The Reinvestment Fund has been unusually successful among community development institutions in attracting hundreds of individual and other non-bank investors, but overwhelmingly, even their capital is linked to banks and the public sector. If ImpactPHL can position itself as an architect for marketing local impact bonds that can be bought by Philadelphia regional investors, they will accomplish a great deal.

Given the limits of either the old style public welfare state or pure profit maximizing capitalism to solve critical social and environmental problems, blended value efforts that combine social impact with economic viability are likely to become more important in the 21st century.

But before they do that, they will have lots of decisions to make, including how they define the local social impact economy. What guiding principles give a double bottom line approach substantive meaning in the local context?

ImpactPHL will also have to create an atmosphere where a variety of institutions drawn from the four segments—community development/small business groups, the corporate community, individual investors, and social entrepreneurs—see their interest being met. That is no easy task in a civic culture that often functions jealously.

One thing that will help ImpactPHL is a large institutional prime mover: A check writer, not a check receiver. In Chicago, MacArthur with its multi-billion dollar balance sheet plays that role, using its capacity recently to launch an effort to draw in donor advised funds into Chicago neighborhood investing. The foundation, working with the Chicago Community Trust and the Calvert Foundation, provided liquidity and some risk protection for those investors on the sideline, who were motivated to join the effort. The credibility of MacArthur and its balance sheet was the difference maker.

So who will play that role in Philadelphia? That will be one of the issues that ImpactPHL will have to grapple with if it wants to have some breakthrough success. Can Vanguard—the largest family of mutual funds in the world—located in this region, help them create a mutual fund option for their local advised donors? Can Comcast become a prime mover in this work? Or is there a major private foundation in town that could play the MacArthur role in Philadelphia?

However this plays out, let’s wish the ImpactPHL alliance the best. They are raising their voices and building a vision that straddles regional growth, social change, and capital markets. That in itself, is a small miracle.