Summary: Impact investing has seen massive growth and is now more than a US$1 trillion market size. We look at an example of where the strategy can have the wrong focus and execution (Home REIT), as well as examples of where the longer term benefits can be material (Clean water and sanitation, domestic violence services and the Mectizan Donation Program).
Why this is important: 'Doing well by doing good' is a careful balance with potentially direct and immediate sacrifices of some return resulting in longer term benefits to society as a whole.
The big theme: Impact investing seeks to improve lives either through social or environmental projects. It has grown materially in the past decade and can have important leveraged impacts developing local communities, reducing the draw on social services, improving lives and providing economic sustainability.
What is impact investing?
The Global Impact Investing Network (GIIN) defines impact investing as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”
The Impact Management Project (IMP) brought together more than 2,000 organisations to build consensus and define what impact investing is and the five dimensions of impact:
- What outcome does the effect drive and how important are they for stakeholders?
- Who experiences the effect and how under served were they beforehand?
- How much of the effect occurs and for how long?
- How does the effect compare and Contribute to what the market would likely do anyway?
- Which Risk factors are material and the likelihood that impact will be different than expected?
The IMP also illustrates three ways in which organisations, both corporates and investors can align their strategic decisions or investments with their intentions - the 'ABC'