Impact investment 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 rate, depending on investors’ strategic goals.

 

Social impact investment brings together capital and expertise from the public, private and not for profit sectors to achieve a social objective. Investment can be made into companies, organizations or funds whether they are not for profit or for profit.

 

The growing impact investment market provides capital to address the world’s most pressing challenges in various sectors including health-care, affordable and accessible basic services such as affordable housing, sustainable agriculture, renewable energy, conservation, micro-finance, and education.

 

Financing social services

Social impact investment can also be used to finance social services and social infrastructure. In these types of arrangements, payments are normally made on achieving agreed social outcomes rather than on input or activities.

 

Where investors are involved, they will usually expect their investment to be repaid and potentially, earn a return. A return that mostly depends on the level of social outcomes achieved.

 

On April 3th, the Global Impact Investing Network (GIIN) published core characteristic of impact investing which complement the definition and aim to provide further clarity on the approach of impact investing. These tenets that establish baseline expectations for impact investment are;

 

Intentionality; an investor’s intention to have a positive social and/or environmental impact through investment is essential to impact investing

 

Investment with return expectations; impact investments are expected to generate a financial return on capital or at a minimum a return of capital

 

Range of return expectations and asset classes; impact investment target financial return that range from below market-sometimes referred to as concessionary-to risk-adjusted market rate and can be made across classes, including but not limited to cash equivalents, fixed income, venture capital and private equity.

 

Social impact is growing

The world of social impact investment is expanding rapidly. In 2012, the forum for Sustainable and Responsible Investment reported $3.31 trillion in the US assets held by 443 institutional investors and 272 money managers. In addition, 1,043 community investment institutions applied ESG standards into their investment portfolios. One of the most interesting parts about social impact investing is the return investors are seeing.

 

 

With the development of financial technology and energetic blockchain innovations, the market for impact investment has been experiencing major expansion and more and more investors look to generate profits beyond financial using digital investment methodologies.

 

As millennials start to gain more and more equity in the market, this is an absolute sector that will continue to grow. 90% of millennials would switch brands to one associated with a cause, hence millennials are likely to switch to investments with the same values as well.

 

With these numbers, social impact investing is poised to be a huge trend. Some of the financial ventures changing the world through social investing include; Tin Shed Venture, Heed Capital, Impact Engine and New Age Capital. The one thing such firms have in common is that they are using their funds to create a better more sustainable world.