Impact investing

Impact investing refers to investments 'made 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. ”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 and fiduciary concerns facing pension fund board 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 fair risk-adjusted returns for future pensioners?” Impact investing refers to investments 'made 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 as renewable energy, basic services including housing, healthcare, and education, micro-finance, and sustainable agriculture. Institutional investors, notably North American and European development finance institutions, pension funds and endowments have played a leading role in the development of impact investing. Under Pope Francis, the Catholic Church has witnessed an increased interest in impact investing. 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'. Historically, regulation—and to a lesser extent, philanthropy—was an attempt to minimize the negative social consequences (unintended consequences, externalities) of business activities. However, a history of individual investors using socially responsible investing to express their values exists, and such investing behavior is usually defined by the avoidance of investments in specific companies or activities with negative effects. Simultaneously, approaches such as pollution prevention, corporate social responsibility, and triple bottom line began as measurements of non-financial effects, both inside and outside of corporations. In 2000, Baruch Lev, of the NYU Stern School of Business, collated thinking about intangible assets in a book of the same name, which furthered thinking about the non-financial effects of corporate production. Finally, around 2007, the term 'impact investing' emerged. A commitment to measuring social and environmental performance, with the same rigor as that applied to financial performance, is a critical component of impact investing. The number of funds engaged in impact investing grew quickly over a five-year period and a 2009 report from research firm the Monitor Group estimated that the impact investing industry could grow from around US$50 billion in assets to $500 billion in assets within the subsequent decade. Such capital may be deployed using a range of investment instruments, including equity, debt, real assets, loan guarantees, and others. The growth of impact investing is partly attributed to the criticism of traditional forms of philanthropy and international development, which have been characterized as unsustainable and driven by the goals—or whims—of the corresponding donors. 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. Impact 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 GIIN's 2017 Annual Impact Investor Survey. The largest sectors by asset allocation were microfinance, energy, housing, and financial services. Many development finance institutions, such as the British Commonwealth Development Corporation or Norwegian Norfund, 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.