Impact investing is the act of buying into into companies, organizations, causes and funds with the intention to generate a measurable, beneficial, social or environmental impact along side a financial return. Impact investors seek out potential ventures in a variety of industries , some common ones being renewable energy, basic services including access to water, electricity and housing, healthcare, and education, micro finance, and sustainable agriculture.In terms of asset classes, impact investing can occur across all classes i.e., private equity or venture capital, debt, and fixed income. Impact investments are now more widely being adopted by all levels of investors i.e., banks, angel investors, retail investors, venture capitalists and personal investors.
The UNDP Three Guiding principles that defines impact investing are as follows
1. The expectation of a financial return
Impact investors expect to earn a financial return on the capital invested, below the prevailing market rate, at the market rate or even above it.
2. The intention to tackle social or environmental challenges
In addition to a financial return, impact investors aim to achieve a positive impact on society and or the environment.
3. A commitment to measuring and reporting against the intended social and environmental impact
Impact investors commit to measure performance using standardized metrics.
Impact investing can also be a great introduction into the world of investments. If you’re a first-time investor, investing in a social cause, renewable energy or environmental conservation could be a great way to understand how investments work and to also see the benefits of investing in such causes both financially and in terms of impact.
In essence,everyone! Impact investments are now more widely being adopted by all levels of investors i.e., banks, angel investors, retail investors, venture capitalists and personal investors alike.Some prominent names in the impact investing sector include :General Electric – Through it’s Ecomagination Program and their partnership with OPIC, GE lent 1 million Dollars in the form of direct loans to Burn Manufacturing, maker of sustainable burning stoves for underprivileged communities in Africa. GE also created the Ecomagination Accelerator, providing up to $20 million for scaling and commercializing sustainable development and impact driven ideas.Morgan Stanley – In Line with the Community Reinvestment Act, the bank has not only channeled capital into undeserved parts of the US but has also a very strong investment professionals championing impact businesses. They also created a new ‘Investing with Impact’ platform for its clients a new Institute for Sustainable Investment focusing on product development Johnson & Johnson – Through the incorporation of the Johnson & Johnson Corporate Citizenship Trust, the organisation has shown a commitment towards creating meaningful impact and are one of the pioneers in branching out from the traditional CSR Grant-making framework to social investing.…Among others
Some key findings according to the recent.Annual Impact Investor Report 2018conducted by the Global Impact Investing Network :
1. The market is diverse
Impact investors come from a wide range of sectors i.e., fund managers, banks, family offices, insurance and pension funds. They are managed in developed markets in the US,Canada, Europe and emerging markets in Asia Pacific and the African continent – investments made were almost proportional in emerging and developed markets. In terms of target returns, the GIIN found that 64% of their respondents target risk-adjusted, market-rate returns. The remainder sought below-market-rate returns that are either closer to market-rate returns or closer to capital preservation. Two-thirds of respondents make only impact investments; the remaining third also make conventional investments. The large majority of investors in this study invest through private equity and private debt.
2. The impact investing industry is growing
Over half of the participants in this project made their first impact investment in the past decade, indicative of the ongoing entry of new players to the industry. In terms of investment amounts, in 2017 there was a reported USD 35.5 billion investment into 11,136 deals and that number is set to rise USD 38.5 Billion into 11, 712 deals for the 2018 fiscal year.
3. Impact investors demonstrate a strong commitment to measuring and managing impact.
Social and Environmental impact businesses are the bulk of where the impact investments were made and to gain the most of these investments, impact measurements were put in place as indicators of how well investments are doing in terms of driving social/environmental impact management, to inform investment decisions, to hold investees accountable, and to hold their own teams accountable to impact. Where most set up a mix of tools, systems and proprietary metrics to measure their social and environmental performance, the ratification of the UN Sustainable Development Goals have allowed for most investors to track their investments on the SDGs.
4. Overwhelmingly Impact
Investors report performance in line with both financial and impact expectations. A large majority of Impact investors in this report claim that their investments have met or surpassed expectations both financially and impact-wise.
5. Impact investors acknowledge remaining challenges that need to be addressed within the industry.
Despite the overall good news, the transparent and accountable nature of impact investing has brought about it a new set of challenges both for impact investors and for businesses alike.
6 reasons how Impact investing creates a better future
1. Tackle Global Challenges
The earth’s most urgent issues; climate change, extreme poverty, limited access to healthcare and education – cannot be solved through government initiatives alone. Just to meet the Sustainable Development Goals (SDGs) in developing countries requires an estimated annual $2.5 trillion. Private impact investments are needed to fill that gap.
2. ‘People, Planet, Profits’
There’s no reason why investors can’t pursue a triple bottom line of “people, planet, profit.” With impact investing, values and profit are no longer in competition. This type of investing allows you to signal your commitment as a responsible investor without giving up on returns.
3. Network with big thinkers and like-minded changemakers
From renowned human rights activists, leading entrepreneurs, investors and development experts. Impact investing brings together people from diverse backgrounds who are united by a belief in the financial and social imperative of impact investments
4. Change the culture of investing
Impact investing is on the rise; the majority of funds dedicated solely to investing in social change were created in the past decade. Today’s investors are in a position to take advantage of this energy and to further bring impact investing into the mainstream. If investors commit our leadership ability, entrepreneurial acumen and resources to a revision of the status quo, we can help create a new normal around impact investing.
5. Be a global citizen
As investors, it is often easy to become overly focused on financial bottom lines and the sectors that dominate our portfolios. Investing in social or environmental opportunities broadens our horizons and gives us an opportunity to drive positive change.
6. Heal the world
Our futures are interdependent. As investors and social entrepreneurs, we have a moral imperative to act collaboratively to transform our economies and redefine our notions of value. Impact investing allows us to be a part of social change that makes a measurable difference for our planet and future generations.
Me.reka Makerspace offers impact investment opportunities through our equity crowdfunding campaign. We are determined to provide education access to every level of society through the teaching of classes and workshops and the introduction of new technologies such as Virtual Reality, 3D Printing, Laser Engraving and so on. Become an impact investor today by clicking here