What is Impact investing?
Impact investing is the act of buying into into companies, organizations, causes and funds with the intention to generate a measurable, beneficial, social or environmental impact alongside a financial return.
Impact investors seek out potential ventures in a variety of industries , some common ones being renewable energy, basic services including access to water, electricity and housing, healthcare, and education, microfinance, and sustainable agriculture.
In terms of asset classes, impact investing can occur across all classes i.e., private equity or venture capital, debt, and fixed income. Impact investments are now more widely being adopted by all levels of investors i.e., banks, angel investors, retail investors, venture capitalists and personal investors.
The UNDP Three Guiding principles that defines impact investing are as follows;
1. The expectation of a financial return: impact investors expect to earn a financial return on the capital invested, below the prevailing market rate, at the market rate or even above it.
2.The intention to tackle social or environmental challenges : in addition to a financial return, impact investors aim to achieve a positive impact on society and/or the environment.
3. A commitment to measuring and reporting against the intended social and environmental impact: impact investors commit to measure performance using standardized metrics.
Impact investing can also be a great introduction into the world of investments. If you’re a first-time investor, investing in a social cause, renewable energy or environmental conservation could be a great way to understand how investments work and to also see the benefits of investing in such causes both financially and in terms of impact.
Who is making impact Investments?
In essence,everyone! Impact investments are now more widely being adopted by all levels of investors i.e., banks, angel investors, retail investors, venture capitalists and personal investors alike.
Some prominent names in the impact investing sector include :
General Electric – Through it’s Ecomagination Program and their partnership with OPIC, GE lent 1 million Dollars in the form of direct loans to Burn Manufacturing, maker of sustainable burning stoves for underprivileged communities in Africa. GE also created the Ecomagination Accelerator, providing up to $20 million for scaling and commercializing sustainable development and impact driven ideas.
Morgan Stanley – In Line with the Community Reinvestment Act, the bank has not only channeled capital into underserved parts of the US but has also a very strong investment professionals championing impact businesses. They also created a new ‘Investing with Impact’ platform for its clients a new Institute for Sustainable Investment focusing on product development
Johnson & Johnson – Through the incorporation of the Johnson & Johnson Corporate Citizenship Trust, the organisation has shown a commitment towards creating meaningful impact and are one of the pioneers in branching out from the traditional CSR Grant-making framework to social investing.
How do Impact investments perform ?