Impact investment is capturing the growing attention of mainstream investors, and everyone is increasingly hearing and talking about it.
During the past 12 months, I have listened to people talk about impact investing more than in all the previous years combined. There is a growing awareness and an emerging community in the UK and Europe, following on from the great work carried out in the United States so far. However, it is still visible that most times you talk to people about Impact Investing, they tend to look back asking: “Impact Investing? What is that?”
This situation is something that will start repeating itself as society discusses the future of investing, as the world evolves in order to become truly sustainable, regardless of being in the financial services business or any other business.
In the next paragraphs, you will find a few key points, definitions and examples that can help to start understanding the concept and its applicable importance in our everyday conversations, decisions and actions. The main objective is to gain an initial view, learn about some of the people and companies leading the industry, and to share it with anyone that can benefit from it.
Impact Investing Is A Growing Focus For Investors
Impact investing is growing with some significant investors getting involved and setting up their own impact investment funds, and yet the sector is still at its infancy.
This is a segment of investment that has been growing rapidly, and the Global Impact Investors Network (GIIN) estimates from the latest annual survey that there is now $228 billion in impact investing assets which is roughly double that of last year.
Thomson Reuters Foundation reported that members of Toniic, a global investment club for impact investors, have seen similarly spectacular growth with members having their combined $2.8 billion of impact investments, which are up from $1.65 billion in 2016.
So What Is Impact Investing? “An Emerging Asset Class”
Impact investment, as defined by GIIN, are “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.
The term itself dates back to 2008 when the Rockefeller Foundation first coined the term impact investing when there was an emerging conversation on how to use capital differently.
JP Morgan reported that impact investments, an emerging asset class, “offers the potential over the next 10 years for invested capital of $400 billion–$1 trillion and profit of $183– $667 billion” Alongside impact investing other similar ideas have evolved such as conscious capitalism, sustainable investment, and ethical investment.
Socially responsible investment (SRI), which is a well-defined framework for choosing investments based on environmental, social and governance (ESG) criteria is not new to investors. One might argue that impact investing has evolved out of SRI to the broader investment community. The difference today is that impact investors are far more proactive in their intention for positive impact as opposed to merely avoiding the negative impacts. As someone who is reading this, it may not surprise you that the world’s biggest global problem is now attracting impact investments. So what constitutes impact?
There is a wide variety of problem that needs addressing these include the social issues such as humanitarian crisis of refugees, alleviating the impact from climate change-induced extreme weather events, reducing air pollution in cities, addressing ocean plastics, transforming our energy system to clean energy or sustainable ways of food production, to providing access to quality education and healthcare.
More recently, in 2016, the United Nations launched the Sustainable Development Goals (SDGs) also known as “Global Goals”. These have helped focus on what needs to be achieved and measured in order to solve the world challenges. This is now galvanising the global effort in addressing the biggest challenges faced by humanity. For many Impact investors and funds, the 17 Global Goals have become a guideline for key performance indicators.
Impact Investing, Traditional Investing And Philanthropy
You might wonder how impact investment might be different from traditional investing or philanthropy. As this Forbes explainer video shows, impact investment “combines both the rigorous analytics of traditional investment and the heart of philanthropy.”