When TPG, the private equity group, sought to raise $1.5bn for a “global impact fund” last year, it rapidly surpassed expectations. With high-profile personalities including Bono and Jeff Skoll on the board, it was able to draw in $2bn.

The process has made the Rise Fund the largest such dedicated investor yet, with a stated objective of “social and environmental impact alongside competitive financial returns . . . [to] drive meaningful, measurable positive change”.

Rise adds to a growing number of both specialist funds and mainstream financial institutions and foundations that are beginning to allocate money to the field. A first challenge is one of definition. “Impact” can mean different things to different people — from “negative screening” to avoid investing in companies such as tobacco manufacturers, to “positive” approaches focused on improvement in areas such as climate change mitigation.

That creates disagreement over methodologies for assessing impact. Rise is the latest to unveil its own 30-point criteria: “We are using our resources to develop a rigorous, analytical and evidence-based system for measuring and managing social and environmental impact, which we plan to make available to other industry players,” says Maya Chorengel, a senior partner.

“This is a very important moment,” says Amit Bouri, chief executive of the Global Impact Investing Network (GIIN), a non-profit advocate for the sector. “We are now in a transition. It is a moment of truth for the market, and we can really see the possibility of realising the potential for impact investing.”

His organisation’s latest survey — which covers only part of the industry — estimates there is now at least $114bn invested in ways that managers consider to have broader impact. Development institutions like the CDC in the UK help swell such figures, but money is also coming from mainstream private sector investors like Prudential and specialists like Triodos.

The question is whether and how well such sums can be invested.

At least since the 1960s, philanthropic organisations such as the Ford and MacArthur Foundations shifted from simply donating money to allocating a proportion of their resources — sometimes from their endowments — to social investments. That supported organisations operating in line with these philanthropists’ social objectives, while also generating a return that could be reinvested.

The Bill & Melinda Gates Foundation, for instance, long argued that it should maximise the value of its endowment through investing simply for high returns in order to then give away more money. But it has introduced more “programme related investments” in recent years.

The relative newcomers are individual investors that say they now want to see a social as well as a financial return on their money — or at least to minimise ethical concerns around their investments. At the start of the year, Larry Fink, the head of BlackRock, the world’s largest money-manager, urged the chief executives of S&P 500 companies in the US to act with social responsibility and to look beyond short-term gains — or risk divestment.

Evidence that ESG-focused investments can deliver superior returns is mixed but BlackRock’s own study last month found that breaches of environmental, social, and governance policies that led to lawsuits or regulatory actions affected performance.

The biggest debate around impact investing is whether investors can have it all: strong social impact alongside strong financial returns.

Mara Bolis from Oxfam, the UK charity, and Chris West from Sumerian Partners, an adviser to family foundations, argued in a paper in the Stanford Social Innovation Review last autumn: “The most impactful and successful of social enterprises in emerging economies — even in developed countries — are likely to generate only low-single-digit financial returns.”

They suggest that those projects with greatest social impact typically may be lossmaking and require support for a number of years, and even in the longer term may generate only scant financial returns.

That leads to another challenge: a thin pipeline of “investable projects” even though many projects focused on helping achieve the UN’s Sustainable Development Goals bemoan a lack of funding.

Traditionally, much impact investing has been in affordable housing, notably in the US. Mr Bouri says GIIN’s survey shows how that is changing, with a significant shift in resources and intentions towards emerging markets, and into other sectors such as agriculture, energy, health and education.

The FT, in conjunction with the International Finance Corporation and other partners, is seeking to identify the most promising next generation of innovative and viable companies with impact around the Sustainable Development Goals.

In a series of special reports articles, an annual award, a conference and feedback sessions between advisers and companies this summer, we will seek to showcase innovations with impact to a broader group of backers, and promote wider debate on the topic.