Why social impact investing needs a radical rethink for true change

While ESG investing is on the rise, much of the attention and capital is being funneled into the “E”—environmental issues—leaving the “S” for social impact behind. In this piece, Til Klein, founding partner at identity.vc, argues that we need to redefine what social impact investing actually means. Rather than charity or niche philanthropy, social investing should be about driving real, economically motivated change—supporting fair access and representation for women, minorities, LGBTQ+ people, immigrants, and individuals with disabilities.

The issue, according to Klein, lies in a flawed theory of change. Most social investors only fund businesses whose core product directly addresses social issues, like healthcare access or job platforms for marginalized groups. While valuable, these businesses often grow slowly, and their reach remains limited. Instead, Klein suggests that the most powerful way to drive social change is through mainstream companies—by backing diverse leadership, inclusive teams, and underrepresented founders.

This shift in approach makes both social and financial sense. Research consistently shows that companies with diverse leadership perform better. Investing in founders from different backgrounds doesn’t just uplift individuals—it reshapes industries, sparks new ideas, and breaks down the structural barriers that perpetuate inequality. These investments offer ripple effects far beyond their bottom lines, with the power to influence company culture, hiring practices, and long-term access to opportunity.

To truly unlock the potential of social impact investing, investors need to think bigger. That means weaving diversity and inclusion into the fabric of all investing—not just niche corners of the market. By changing the definition of social impact to include who gets funded and who leads, we can create a more inclusive economy that delivers stronger returns and a fairer future for everyone.

Read the full article here.

Source: https://www.eu.vc/p/why-social-impact-investing-needs