What is Impact Investing?
Impact investments are investments made into companies, organizations, and funds with the intention of generating a measurable, beneficial social or environmental impact alongside a financial return.
There are a number of models being implemented in the impact investing field such as social impact bonds, venture capital funds for clean tech, social entrepreneurship funds, capital aggregation models etc.
An investment portfolio reflects the values of both the investor and the fund manager. Assisting in developing a values-based investment statement that not only states expected returns, but also defines acceptable corporate behaviour is the manager’s responsibility to the client. Policy and advocacy, structuring funds from an idea through to delivery to create impact and monitoring and evaluation of the fund are at the core of impact investing for both manager and investor.
The intent of the investor to generate social and/or environmental impact through investments is an essential component of impact investing. Impact investments generate returns that range from below market (sometimes called concessionary) to risk-adjusted market rate. Impact investments can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital and private equity. A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments.
A growing number of social entrepreneurs and investors realize that social enterprises of all sorts can generate financial returns that will make them attractive to the right investors. Some of the methods used to support social enterprises are loan guarantees by the Gates Foundation, quasi-equity debt, combining equity and debt as supported by Bridges Ventures and pooling, used by BlueOrcard.
What is the difference between traditional and not for profit funding models?
Traditional funding concentrates solely on the single bottom line, the emphasis of which is the maximization of profit with disregard for social and environmental issues.
Not for profits rely on short term support from Government and philanthropy, the funding size of which is limited with no guarantee of sustainability. We want them to run like busineses but fund them like charities.