refers toinvestmentsmade into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.Impact investments provide capital to address social and/or environmental issues.
Impact investors actively seek to place capital in businesses,nonprofits, and funds in industries such asrenewable energy,2basic services including housing, healthcare, and education, micro-finance, and sustainable agriculture.3Institutional investors, notablyNorth Americanandpension fundsandendowmentshave played a leading role in the development of impact investing.4UnderPope Francis, theCatholic Churchhas witnessed an increased interest in impact investing.5
Impact investing occurs across asset classes; for example, private equity/venture capital, debt, and fixed income. Impact investments can be made in either emerging or developed markets, and depending on the goals of the investors, can target a range of returns from below-market to above-market rates.6
Historically, regulationand to a lesser extent,philanthropywas an attempt to minimize the negative social consequences (unintended consequencesexternalities) of business activities.citation neededHowever, ahistoryof individual investors usingsocially responsible investingto express their values exists, and such investing behavior is usually defined by the avoidance of investments in specific companies or activities with negative effects.7
Simultaneously, approaches such aspollution preventioncorporate social responsibility, andtriple bottom linebegan as measurements of non-financial effects, both inside and outside of corporations.8In 2000, Baruch Lev, of the, collated thinking aboutintangible assetsin a book of the same name, which furthered thinking about the non-financial effects of corporate production.9
Finally, around 2007, the term impact investing emerged.10A commitment to measuring social and environmental performance, with the same rigor as that applied to financial performance, is a critical component of impact investing.11
The number of funds engaged in impact investing grew quickly over a five-year period and a 2009 report from research firm theMonitor Groupestimated that the impact investing industry could grow from around US$50 billion in assets to $500 billion in assets within the subsequent decade.12Such capital may be deployed using a range of investment instruments, including equity, debt, real assets, loan guarantees, and others.12The growth of impact investing is partly attributed to the criticism of traditional forms of philanthropy andinternational development, which have been characterized as unsustainable and driven by the goalsor whimsof the corresponding donors.13
Currently impact investing is still only a small market when compared to the global equity market, estimated at US$61 trillion (market capitalization of domestic listed companies) by the World Bank in 2015.14Impact investors managed USD 114 billion in impact investing assets, a figure that serves as a best-available floor for the size of the impact investing market, according to GIINs 2017Annual Impact Investor Survey. The largest sectors by asset allocation were microfinance, energy, housing, and financial services.1514
Manydevelopment finance institutions, such as the BritishCommonwealth Development Corporationor NorwegianNorfund, can also be considered impact investors, because they allocate a portion of their portfolio to investments that deliver financial as well as social or environmental benefits.16
Impact investing is distinguished fromcrowdfundingsites, such asIndiegogoorKickstarter, because impact investments are typically debt or equity investments over US$1,000with longer-than-traditionalventure capitalpayment timesand an exit strategy (traditionally aninitial public offering (IPO)or buyout in the for-profitstartupsector) may be non-existent. Although some social enterprises are nonprofits, impact investing typically involves for-profit, social- or environmental-mission-driven businesses.
Organizations receiving impact investment capital may be set up legally as a for-profit, not-for profit,B CorporationLow-profit Limited Liability CompanyCommunity Interest Company, or other designations that may vary by country. In much of Europe, these are known associal enterprises.17
Impact investments occur across asset classes and investment amounts. Among the best-known mechanism is private equity or venture capital.Social venture capital, or patient capital, impact investments are structured similarly to those in the rest of the venture capital community. Investors may take an active role mentoring or leading the growth of the company,18similar to the way a venture capital firm assists in the growth of an early-stage company. Hedge funds and private equity funds may also pursue impact investing strategies.19
Impact investment accelerators also exist for seed- and growth-stage social enterprises. Similar to seed-stage accelerators for traditional startups, impact investment accelerators provide smaller amounts of capital than Series A financings or larger impact investment deals.20Most impact investment accelerators are nonprofits, raising grants from donors to pay for business development services; however, commercially orientated accelerators providing investment readiness and capital-raising advisory services are emerging.
Large corporations are also emerging as powerful mechanisms for impact investing. Companies that seek to create shared value through developing new products/services, or positively impacting their operations, are beginning to employ impact investments through their value chain, particularly their supply chain.21
Impact investing can help organizations become self-sufficient by enabling them to carry out their projects and initiatives without having to rely heavily on donations and state subsidies.
Governments and national and international public institutions includingdevelopment finance institutionshave sought to leverage their impact-oriented policies by encouragingpension fundsand other large asset owners to co-invest with them in impact-informed assets and projects, notably in theGlobal SouthWorld Pensions Counciland other US and European experts have welcome this course of action, insisting nonetheless that:
Governments and international institutions need to do more if they truly seek to unlock private sector capital in a meaningful way. They have to ask themselves the following questions: what are the concrete legal, regulatory, financial andfiduciaryconcerns facing pension fundboard members? How can we improve emerging industry standards for impact measurement and help pension trustees steer more long-term capital towards valuable economic endeavors at home and abroad, while, simultaneously, ensuring fairrisk-adjusted returnsfor future pensioners?4
Mission investments are investments made by foundations and other mission-based organizations to further their philanthropic goals, either with a portion or with the entirety of theirendowment.22They include any type of investment that is intended and designed to generate both a measurable social or environmental benefit and a financial return. For example, after theHeron Foundations internal audit of its investments in 2011 uncovered an investment in a private prison that was directly contrary to the foundations mission, the foundation developed and then began to advocate for a four-partethical framework to endowment investmentsconceptualized as Human Capital, Natural Capital, Civic Capital, and Financial Capital.23
Program-related investments (PRIs) or other concessionary (below-market rate) investments are primarily made to achieve programmatic rather than financial objectives. This category includes grant support, equity (stock), subordinated loans, senior loans, below-market cash deposits and loan guarantees. For private foundations, PRIs count towards the required 5 percent annual payout.
Market-rate investments (MRIs) expected to generate a market-rate financial return on investment comparable to an ordinary investment of a similar type and risk profile. They are designed to have a positive impact while contributing to the foundations long-term financial stability and growth. This category includes market-rate cash deposits, fixed income (bond), private equity and public equity (stocks).
Impact investing historically took place through mechanisms aimed at institutional investors. However, there are ways for individuals to participate in providing early stage or growth funding to such ventures.
Exchange-traded fundslike the SPDR Gender Diversity ETF fromState Streetare publicly traded and hence available to anyone with a stock brokerage account.MSCIoffers 11 environmental, social and governance index ETFs, including popular low-carbon and sustainability indexes.25
Groups ofangel investorsfocused on impact, where individuals invest as a syndicate also exist. Examples include Investors Circle in the US,26Clearly Social Angels in the United Kingdom27and Toniic in Europe.28
Web-based investing platforms, which offer lower-cost investing services, also exists. As equity deals can be prohibitively expensive for small-scale transactions, microfinance loans, rather than equity investment, are prevalent in these platforms.MyC4, founded in 2006, allows retail investors to loan to small businesses in African countries via local intermediaries.Microplacewas an early United States provider of such services which ceased taking on new loans in 2014, stating that its results havent scaled to the widespread social impact we aspire to achieve.29
Impact Investing in Asia is a burgeoning sector with many funds currently in play. However, many funds suffer from finding robust levels of investment opportunities for their pipeline given their ability to hedge internal requirements and risks and a potential inability to exit the various investments that they are invested in.citation neededIn South East Asia, from 2007 to 2017, USD 904 million Impact capital was deployed by Private Impact Investors (PIIs) and USD 11.9 million was deployed by Development Finance Institutions (DFIs)30.
Gender lens investingis a subsection of Impact Investing, and refers to investments which are made into companies, organizations, and funds with the explicit intent to create a positive impact on gender. Investments which promote gender equity and address gender based issues can be made by investing in gender led enterprises, enterprises which promote gender equality through hiring, women in positions of authority, or in their supply chain, as well as supporting services which support, empower and develop capacity of women31. Gender lens investing was created in response to the difficultly which woman face in accessing capital, as women globally have less access and higher barriers to obtaining capital32
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GridShare — Equity based renewable energy crowdfunding platform
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Loan qualifying investor alternative investment fund(LQIAIF)
Qualifying investor alternative investment fund(QIAIF)
Articles with unsourced statements from December 2018
Articles with unsourced statements from November 2017
This page was last edited on 19 May 2019, at 22:20