Impact investing

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Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to above market rates, depending upon the circumstances. Impact Investing tends to have roots in either social issues or enviromental issues. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.[1] Impact investing occurs across asset classes, for example private equity / venture capital, debt, and fixed income.

Impact investors are primarily distinguished by their intention to address social and environmental challenges through their deployment of capital. For example, criteria to evaluate the positive social and/or environmental outcomes of investments are an integrated component of the investment process. In contrast, practitioners of socially responsible investing also include negative (avoidance) criteria as part of their investment decisions.[2][3]

Contents

Background [edit]

Historically, regulation - and to a lesser extent, philanthropy - was an attempt to minimize the negative social consequences of business activities. But there is a history of individual investors using socially responsible investing to express their values, usually by avoiding investments in specific companies or activities with negative effects. In the 1990s, Jed Emerson advocated the blended value approach, for foundations' endowments to be invested in alignment with the mission of the foundation, rather than to maximize financial return, which had been the prior accepted strategy. [4]

Simultaneously, approaches such as pollution prevention, corporate social responsibility, and triple bottom line began to measure non-financial effects inside and outside of corporations. In 2000, Baruch Lev of NYU Stern School of Management pulled together thinking about intangible assets in a book by the same name, which furthered thinking about non-financial effects of corporate production.

Finally, around 2007, the term "impact investment" emerged, an approach that deliberately builds intangible assets alongside tangible, financial ones.[citation needed]

The Industry [edit]

Market Size [edit]

The number of funds engaged in impact investing has grown quickly in the last five years, and a 2009 report from the Monitor Group, a research firm, estimated the impact investing industry could grow from its present $50 billion or so in assets to $500 billion in assets within the next decade.[5] This capital may be in a range of forms including equity, debt, working capital lines of credit, and loan guarantees. Examples in recent decades include many investments in microfinance, community development finance, and clean technology.[5] Its growth is partly in response to criticism of traditional forms of philanthropy and international development, which have been characterized as unsustainable and driven by the goals - or whims - of the donors.

Many development finance institutions such as the British Commonwealth Development Corporation or Norwegian Norfund can also be considered impact investors, because they allocate a portion of their portfolio to investments that deliver financial as well as social or environmental benefits.

Impact Investment Mechanisms [edit]

Impact investments occur across asset classes. Among the best-known mechanism is private equity, or venture capital. Impact investments are structured similarly to those in the rest of the venture capital community. Investors may take an active role mentoring or leading the growth of the company,[6] similar to the way a venture capital firm assists in the growth of an early-stage company.

Impact investing primarily takes place through mechanisms open to institutional investors. However, there are ways for individuals to participate in providing early stage funding to ventures that blend profit and purpose. These include Indiegogo, Kiva, Zidisha, MYC4, and Kickstarter. Other opportunities available to individuals include the Institute for Community Economics' Investor Note, the Calvert Foundation's Community Reinvestment Note or the Enterprise Community Partners Community Impact Note.

Organizations receiving impact investment capital may be set up legally as a for-profit, not-for profit, B Corporation, Low-profit Limited Liability Company, or other designations that may vary by country.

Impact Investment Funds [edit]

Additional Resources:

Metrics, Standards, and Data [edit]

A com­mit­ment to meas­ur­ing social and envir­on­mental per­form­ance with the same rigor as fin­an­cial per­form­ance is a crit­ical, even indis­pens­ible, com­pon­ent of impact invest­ing. [7]

See also [edit]

References [edit]

  1. ^ http://www.thegiin.org
  2. ^ JP Morgan Report, Impact Investments: An Emerging Asset Class, 29.11.2010
  3. ^ Domini, Amy (14 March 2011). "Want to Make a Difference? Invest Responsibly". The Huffington Post. Retrieved 26 November 2011. 
  4. ^ "Impact Investing with Jed Emerson". 
  5. ^ a b Monitor Institute, Investing for Social and Environmental Impact, January 2009.
  6. ^ Fraser, Bruce W. Wealthy Attracted To Impact Investing, Financial Advisor Magazine, republished on NASDAQ.com
  7. ^ Luther Ragin Jr., Katy Lankester of the Global Impact Investing Network http://www.snsimpactinvesting.com/publications/columns/investing-with-intent-for-impact/

External links [edit]
Collective investment scheme structures
Investment styles
Theory and terminology
Related topics
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