With the global COVID-19 pandemic unfolding, millions of individuals displaced, and economies attempting to recover from devastating economic shutdowns, it may be a great time to discuss how businesses and individuals can aid others on the road to recovery.
Many are aware of ESG and SRI investing, but some may not be aware of impact investing – a fantastic way to generate positive impact through investing. In times like these, it is vital to understand how we can help others, and a great way to help is through impact investing. But what is it?
What is Impact Investing?
According to the Global Impact Investing Network (GIIN), “impact investments are investments made with the intention to generate positive, 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 market rate, depending on investors' strategic goals.
The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, micro-finance, and affordable and accessible basic services including housing, healthcare, and education.” (Source)
The Global Impact Investing Network (GIIN) is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. They are a leading organization involved in reducing barriers to impact investments for those wishing to address some of the world’s most pressing challenges. Click here to read more about the GIIN
How Does Impact Investing Work?
Impact investing generally allows capital to flow to entrepreneurs that will solve local environmental and social issues in a responsible and profitable manner. Impact investors still expect a financial return, unlike donating to a charity that attempts to address similar challenges. The returns an investor receives can be impacted by the investor’s objectives, and some investors may deliberately choose to sacrifice financial returns for positive impact.
According to the GIIN’s 2019 Annual Impact Investor Survey, most investors in impact investing “pursue competitive, market-rate returns”.
Below is an image from the GIIN displaying how a sample of impact investments fared compared to the investors’ expectations.
Who Makes Impact Investments?
On June 11th, 2020, the GIIN released the 10th edition of their Annual Impact InvestorSurvey which estimates that over 1,720 organizations currently manage around $715billion (USD) in impact investments across the globe as of the end of 2019. Below is an image from the report displaying the types of organizations that tend to manage impact investments.
This research also discusses some of the implications of the novel COVID-19’s impact on the economy and gives the outlook of respondents with the COVID-19 pandemic unfolding.
Key findings from the GIIN Annual Impact Investor Survey (294 respondents representing USD 404 billion of total impact investments):
1. The impact investing industry remains diverse
2. Impact investing has grown in depth and sophistication over time
3. Impact measurement and management practices have matured, but opportunities for refinement remain
4. Impact investors hold a positive outlook for the future, despite headwinds
ESG Investing vs Impact Investing – What’s the Difference?
If you have read our previous article on ESG investing, you may be noticing some similarities between impact and ESG investing and while there may be a few commonalities, they are not at all the same.
ESG investing typically uses environmental, social, and governance factors to enhance traditional financial analysis to select investments, while impact investing generally seeks to generate particular positive environmental and social impacts alongside financial returns through investments.
Organizations and Impact Investing
Here’s a small sample of organizations you may recognize who are part of the GINN’s Investors’ Council, a leadership group for active large-scale impact investors. Members of the council are leading organizations in impact investing today.
- Credit Suisse
- Deutsche Bank
- J.P Morgan
- Morgan Stanley
The GIIN also has made available a very useful set of case studies on organizations making impact investments. The studies generally ask organizations how they define impact, what they’ve done to begin making impact investments, why their approach worked, among many other insightful questions. Click here to view the list