(Bridgespan partner Willa Seldon is a coauthor on this post.)

In September, the center of gravity for the impact investing movement was the SOCAP (Social Capital Markets) conference in San Francisco—a high-energy gathering of people with soaring aspirations for creating social impact through innovative uses of public and, especially, private capital. SOCAP made for an ideal opportunity to take measure of where the movement stands as many struggle to ascertain its true potential.

While the definition of impact investing isn't completely settled, it typically refers to the placement of capital—primarily private—in enterprises with the explicit expectation of achieving both financial and social returns. This market, which encompasses a wide variety of investors and investment types, was recently estimated by JP Morgan and the Global Impact Investing Network to be $46 billion—up 20 percent from the previous year but a small fraction of the $210 trillion in global financial markets.

To our eyes, SOCAP provided ample fodder for both proponents and skeptics, leaving us with three main takeaways:

#1. Impact investing is especially compelling when it seeks well-defined social impacts, supporting market-based approaches in conditions not (yet) able to sustain risk-adjusted market rates of financial returns, fueled by capital from investors prepared to accept below-market financial returns.

At SOCAP, we heard many inspiring stories of initiatives that met these conditions, targeting a vast range of problems from health to environment to housing. These deals capture the essence of what is fresh and distinctive about impact investing—the idea that there's a third way between conventional philanthropy and for-profit investing, where someone who still wants to get money back can unleash fresh solutions with the potential to create huge social impact.

Willy Foote, founder and CEO of Root Capital has dubbed this the "high-risk, low-return sweet-spot" of impact investing, referencing the very uncertain and low financial, not social, returns. Fittingly, Root Capital itself is an exemplar, having activated $150 million from "impact-first" investors to help some 300 high-potential but sub-scale agricultural businesses in Africa and Latin America overcome structural challenges to sustainable success—and in the process, build markets that one day may be attractive to mainstream financial investors.

#2. While the main fuel for impact investing is private capital, government has an important role to play in making this "high-risk low return" space a practical reality. For example, government can provide important early stage capital to attract private investment. Today, the Community Development Financial Institutions Fund marshals $20 of private capital for every $1 of federal funds invested. At SOCAP, Matt Bannick of the Omidyar Network and UK social investment icon Sir Ronald Cohen touted the work of the US National Advisory Board on Impact Investing (NAB), led by Bannick and Tracy Palandjian of Social Finance.

The NAB's recent report (which, in full disclosure, Bridgespan helped prepare) laid out a series of policy actions the federal government could take to advance such initiatives, for example, adjusting fiduciary standards so that foundations and pension funds can take social factors into account when assessing investments not justifiable on financial criteria alone. Encouragingly, Jonathan Greenblatt, director of the White House Office of Social Innovation, described the NAB report as the Administration's "roadmap for action" on policy changes.

#3. The inclusion in "impact investing" of for-profit investors and enterprises seeking to achieve risk-adjusted, market-rate returns in the near term is likely to cause confusion and cynicism, especially where such deals dominate estimates of the overall market's size and growth—as they presently do. While impact investing proponents have tired of the "impact-first" vs. "financial-first" distinction, it still describes fundamental differences in investor intent, accountability for performance and the nature of the challenges organizations face as they pursue their goals.

The vexing question is what differentiates an "impact investment" from any other profit-seeking investment that actually achieves the same goals? Between 1990 and 2010, the percentage of the world's population experiencing extreme poverty fell from 43 percent to 21 percent—nearly a billion people. It's hard to imagine a more profound example of social impact in recent history, yet this was driven mainly by for-profit economic entities that probably weren't promoting a "double-bottom line."

Clearly, for-profit businesses can be powerful engines for driving social progress, whether as a by-product of rational profit-seeking, an explicit–if undefined–aspiration (e.g., Apple) to "change the world," or in the classic development of next-generation industries like renewable energy. But we have now called out a special category of profit-seeking investor and business, based on a presumption of superior accountability for social impact that seems questionable. As several SOCAP panelists from investment funds pointed out, both due-diligence and post-facto assessments of social impact tend to be far less rigorous than for financial performance. And it remains to be seen how investors seeking market-rate financial returns will react should an enterprise fall well short of its social impact targets but meet or exceed its profitability goals. In conclusion, thinking back on our experience at SOCAP, it is hard not to be optimistic about the promise of impact investing. But realizing this promise is hardly a sure thing and, we believe, would be advanced by three key actions:

• The federal government should act decisively to eliminate barriers to and provide incentives for initiatives in the "high-risk, low (financial) return sweet spot."
• The market-rate financial return segment of impact investing should be better defined and more clearly differentiated from impact-first segments, especially where flows of capital are being calculated and reported.
• Finally, where investors are prepared to take a below market rate of return, we must continue to improve our ability to define and estimate the social gains truly likely to flow from a given investment. This would position "impact-first" investors, especially large ones like foundations, to make well-informed decisions about resource allocation.

Our global market economies have left a daunting array of social problems, to which entrepreneurs and investors of all stripes are bringing extraordinary energy and, increasingly, money. Indeed, while both proponents and skeptics have a case, the key takeaway from SOCAP may simply be our remarkable progress in validating the myriad ways people can deploy capital to drive significant and sustainable social impact—by whatever name we call it.