An introduction to impact investing
At its core, impact investing is a rejection of the assumption that profit and positive social impact are inherently separate and that choosing one necessarily results in a trade-off. An impact investment is an investment that seeks to intentionally create a measurable social and environmental impact, alongside a financial return.
Impact investing isn’t just another meaningless buzzword; it is a proven means of creating a positive impact. The Global Impact Investment Network estimates that 1340 organisations currently manage USD 502 Billion in assets worldwide and that most organisations achieve at or above market returns. I invite you to further explore this exciting field for yourself in this Impact Update and at future MMI events.
What makes the growing field of impact investing so tantalising is the fact that a significant pool of investments are going to be made regardless, and reallocating even a fraction of that towards positive impact could create profound and systemic change. Convincing investors that they can achieve their desired returns, while making an impact, could divert funds away from negative directions and put the power of capital markets to work for a greater social and environmental good.
Whether you are looking for a career in finance that has an impact, or are interested in a powerful alternative to the public and non-profit sectors, impact investing may be for you. Generally speaking, it is also worthwhile being aware of impact investing when considering how to invest your future Superannuation and wealth.
I understand that you may have some concerns or warranted scepticism, so I hope to alleviate that with a broad overview of the concept and the intuition.
The primary means of making an impact investment is by choosing projects/firms that have social and environmental impact embedded within the business model. This way, ‘blended value’ can be achieved, whereby the very act of profit-making produces beneficial impacts.
A generic example of an impact investment is the renewable energy sector. The more successful a renewable energy business is, the greater returns that investors receive, and the greater the positive environmental impact achieved. This is effective because it doesn’t rely on the altruism of non-profits or the complex organisation of central planning. It’s technically possible (although not ideal), for both the investor and investee to be motivated entirely by self-interest and for there to be a substantial, yet incidental social impact. With such strong incentives in place, concerted efforts to make impact investments can be and are extremely fruitful.
That’s not to say that impact investment aims to replace government, philanthropy, and non-profits, simply that they all have their strengths and weaknesses, and that impact investing is another powerful tool to improve wellbeing.
It is worth noting that the impact investment space functions similarly to mainstream finance in that there are numerous direct, indirect, and supporting roles that can be pursued including but not limited to; venture capital, angel investors, super funds, NGO’s, investment banks, development finance, and regular market participants. Impact investing is also not limited to any particular asset class, ranging from private equity to bonds and beyond (You can read about Social Impact Bonds in MMI’s Inaugural 2018 Impact Review found on our website).
This has been a brief introduction to the world of impact investing. I hope that I’ve sparked some interest and warmly invite you to investigate the rest of the content in this Impact Update and to stay tuned in for future information from the MMI team.
Author: Ben Griffiths | National Affairs Director at MMI
Videos & Interviews
This fascinating talk from Ronald Cohen (a British investor who is renowned for introducing venture capital to the UK), provides insight into his optimism regarding Impact Investing. He is a pioneer in the social impact space through his role in the creation of the world’s first social impact bond, whereby investors procured bonds which funded programs to reduce prison recidivism in the UK, and the government savings from reduced recidivism were returned to investors.
An additional introduction to Impact Investing has been produced by Forbes. It is a succinct overview that provides a clear launch-point for further reading.
Rekha Unnithan leads Nuveen's impact investing team which oversees nearly $1 billion in assets. She provides insight into the types of investments an impact investor may choose and why.
Written by the creators of the terms “Impact Investing” and “Blended Value”, ‘Impact Investing: Transforming How We Make Money While Making a Difference’ is a fantastic resource for learning about the origins, logic, and implementation of Impact Investing. It outlines the potential and origins of a ‘proto’ form of Impact Investing in a fascinating way, while contextualising it within the broader field of social impact.
Impact Investing Podcast
Benjamin Stone is interviewed about his wide experience in social impact and provides advice on how to pursue a career in the field.
Matthew Weatherley-White reflects on his experience in Impact Investing and provides insight into the philosophy and thinking that drives the field.
Return on Investments - Impact alpha
These podcast episodes aim to create a clearer image of impact investing from a professional perspective as well as a discussion of future trends and shifts in the Impact Investing space.