What Is Impact Investing?
Impact investing is the placing of investment capital into firms, organizations, and funds with the intention to generate positive social and/or environmental impact while also earning a financial return. Investors seek to harness the power of markets and entrepreneurial drive to accomplish sustainable impact, occupying a space between philanthropy and investing purely for profit.
The range of investments considered to be Impact Investments is broad. Impact investment can be made in both emerging and developed markets and financial returns may be targeted at below market rates or market rates. A key challenge for the growth of the industry is to devise standardized way of assessing, in particular, measuring, impacts. Generating positive impact is intentional and goes beyond being a “good” company by instituting policies, products and services consistent with a sustainable environment, good social benefits for employees, recognition of commuity and other stakeholders in the governance of the firm (ESG).
How Does it Work?
According to the Global Impact Investing Network (GIIN) the impact investing industry manifests “itself in a wide range of innovations and entrepreneurial activities around the world:
- Private equity funds that aim to provide growth capital profitably to businesses that provide social services are proliferating and expanding access, for example, to education, better healthcare, and decent housing for poor people around the world.
- Clients of leading private banks and pension funds are calling on their investment managers to offer impact investment options.
- Prominent family offices are actively seeking investment partnerships that can help them source, vet, and execute impact investment deals in sectors ranging from sustainable agriculture to healthcare to urban infrastructure.
- Private foundations are seeking to partner with investment banks and development finance institutions to make impact investments in areas related to their social missions.
The impact investing industry has the potential to steer significant sums of money to market-based solutions to the world’s most pressing challenges, including sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology, and financial services for the poor.”