Impact Investing

What is Impact Investing?

Impact Investing is a new trend in corporate philanthropy that blends investment strategies from the business sector with social and environmental impact strategies from the public sector. It allows social and environmental causes to tap into money and other resources that may otherwise be lacking. Simply put, impact investments are made into companies, organizations, and funds in order to generate positive social and environmental outcomes. Investors not only expect to create social value from their investments, but also to get a financial return on capital. Impact investments provide capital to support solutions that create positive impacts, rather than solutions meant to avoid harmful socio-environmental impacts, making them unique from other forms of "socially responsible investment." They also serve as unique catalysts to emerging and developed markets in social and environmental change, enabling recipients to harness the power of enterprise to achieve positive outcomes on a much larger scale than before.

More on Measurement

An important part of impact investing is measuring the social impact created by the organization, project, etc. of choice. There are a variety of approaches taken when measuring impact. Generally, measurement will closely relate to an investor's goals and intentions for their investments. The Global Impact Investing Network gives a general guide for impact measurement best practices (under "Core Characteristics of Impact Investing"):

• Establishing and stating social and environmental objectives to relevant stakeholders
• Setting performance metrics/targets related to these objectives using standardized metrics wherever possible
• Monitoring and managing the performance of investments against these targets
• Reporting on social and environmental performance to relevant stakeholders

Investments are evaluated to determine if the capital provided has been used as originally intended, has achieved the impact intended, and how any generated impact compares to earlier performance prior to the investment. Investors want to see reports that show hard evidence of the social or environmental value of the programs in which they invested. They also want to see an outlook on the future with consideration given to areas of growth and improvement, where future investments may be allocated.

More about Returns on Investment

For something to be deemed an impact investment, the investment must have a financial return that is at least equal to the principle invested, if not more. In the growing world of impact investing, there are three main providers of capital, or investors: professional investors, specialized funds, and governments.

Impact investors are socially motivated; they value the social or environmental outputs generated from the enterprises in which they invest, as well receiving a financial return from their investment. Investors vary in their expectations for financial returns. In their article, Unpacking the Impact in Impact Investing, Paul Brest and Kelly Born explain that "Non-concessionary investors are not willing to make any financial sacrifice to achieve their social goals," and "Concessionary investors are willing to make some financial sacrifice—by taking greater risks or accepting lower returns—to achieve their social goals."

Impact Investing is an innovating strategy for addressing some of the world's most pressing social and environmental issues. As organizations work to address causes and generate positive social and environmental impacts, socially responsible investing provides much needed capital to advancing these causes and driving stronger and farther reaching impacts. It is becoming widely acknowledged that the private and public sector will need to cooperate together to generate the tools, funding and intellectual resources necessary to truly address issues such as poverty, disease, and other issues affecting society and the world. Impact investing is one rapidly expanding approach to achieving widespread social and environmental impacts.

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