The Lowdown on Impact Investing
NOUN: Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
What is impact investing?
Impact investing attracts individuals as well as institutional investors including hedge funds, private foundations, banks, pension funds, and other fund managers.
Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors’ strategic goals.
The point of impact investing is to use money and investment capital for positive social results
The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, micro-finance, and affordable and accessible basic services including housing, healthcare, and education.
Characteristics of impact investing
The practice of impact investing is further defined by the following characteristics:
Intentionality: An investor’s intention to have a positive social or environmental impact through investments is essential to impact investing.
Investments with Return Expectations: Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
Range of Return Expectations and Asset Classes: Impact investments target financial returns that range from below market (sometimes called “concessionary”) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.
How do impact investments perform financially?
Impact investors have diverse financial return expectations. Some intentionally invest for below-market-rate returns, in line with their strategic objectives. Others pursue market-competitive and market-beating returns, sometimes required by fiduciary responsibility. Most investors surveyed in the GIIN’s 2019 Annual Impact Investor Survey pursue competitive, market-rate returns. Respondents also report that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets, and the market as a whole.
Impact investments worth noting
Tin Shed Ventures™ is Patagonia’s corporate venture capital fund, which we use to invest in environmentally and socially responsible start-up companies. It takes its name from the blacksmith shop where Patagonia founder Yvon Chouinard forged pitons, and then made removable hardware that enabled a clean-climbing revolution. That Tin Shed in Ventura, California, still stands alongside our corporate headquarters, as Tin Shed Ventures funds the next generation of responsible businesses.
Ellevest is a transformative financial technology company created to help women achieve their financial potential through modern, low-cost investing, with a beautifully designed digital platform backed by a unique investing approach. From a gender-smart investing algorithm for digital-only customers to bespoke portfolios for private wealth clients, Ellevest also provides the option to invest for impact and in other women. Ellevest is for those who believe that because women generally have longer lifespans and are typically paid less than men, the old approaches haven’t worked for everyone — and that when women thrive, everyone is better off. Ellevest is led by Sallie Krawcheck, called the “Last Honest Analyst” by Fortune Magazine, and was named one of NerdWallet’s Best Robo-Advisors in 2019 and 2018.
Numbers for Good bridges the world of finance to organizations dedicated to improving people’s lives and helping the planet. They create financial solutions that allow organizations to fund social and environmental projects and connect investors with opportunities for sustainable financial and social returns.
The Media Development Investment Fund invests in independent media around the world providing the news, information and debate that people need to build free, thriving societies. Timely, accurate, relevant information is critical to free societies, enabling fuller participation in public life, holds the powerful to account and protects the rights of the individual. The MDIF has investments in more than 100 media companies in 38 countries. They have provided more than $134 million in financing, including $117 million in debt and equity investments. MDIF has received $63 million in recovered principal, earning almost $40 million in interest, dividends and capital gains, and returned $28 million to investors.
One Acre Fund supplies smallholder farmers with the financing and training they need to grow their way out of hunger and poverty. Instead of giving handouts, One Acre Fund invests in farmers to generate a permanent gain in farm income. They supply a complete service bundle of seeds and fertilizer, financing, training, and market facilitation—and deliver these services within walking distance of the 400,000 rural farmers they serve. One Acre Fund began in East Africa, and now currently serves farmers in Kenya, Rwanda, Burundi and Tanzania.