The term ‘Impact Investing’ is becoming more widely known and refers to investments made with the expressed intention of generating a measurable, beneficial social or environmental impact whilst still providing investors with the expectation of a financial return.
So whilst the expectation of a financial return differentiates Impact Investing from philanthropy, it sits well alongside the modern philanthropic sector where rather than simply ‘writing a cheque’, families now apply some of the assessment criteria they use in business to gauge the viability of projects. The emphasis in both sectors is making a measurable difference and we now see family offices, charitable foundations and wealthy benefactors employing capital both ways.
It is no coincidence that the growth of Impact Investing comes at a time when there is an unprecedented transfer of global wealth into the hands of, or at least under the control of, the millennials, a generation who appear determined to consciously use their money to tackle some of society’s challenges and make the world a fairer, better place. Research by Deloitte in 2014 revealed that 30% of millennials believe the number one priority of business should be to improve society so Impact Investing is set to go just one way.
The same generation of millennials are also assuming key roles in the institutional sector. Changing the mind-set of what constitutes an investable proposition in the knowledge there are investors and there is patient capital seeking to maximise impact rather than maximise profit. This is not to say investors should compromise their financial goals. Investing with social change in mind can still make complete commercial sense. Indeed, the changed perspective that comes with looking at social need from a position of wanting to make a measurable difference can uncover potentially profitable investment opportunities that might otherwise be overlooked.
Impact Investing is invariably a ‘win-win’ as it goes without saying the investment must be good for the community it impacts. However, as positive change is at the heart of the business model, the more impact created, the greater the likely return on capital invested.
If this sector is set to grow, who will be driving this growth? Family orientated investors such as private offices, foundations and wealthy entrepreneurs are already becoming increasingly engaged whilst more institutionally, capital is being sourced from governments, NGOs, multi-nationals, development finance institutions and fund managers. For example, over the next five years, UBS alone has committed to direct $5 billion of client money into impact investments supportive of the United Nation’s Sustainable Development Goals.
No longer the preserve of institutional investors or the very high net worth, there are increasing numbers of impact investing opportunities accessible by the small private investor such as Exchange Traded Funds targeting environmental, low-carbon energy and sustainability indices.
Assessing the size of this market is difficult. Yet more important is the trend and that appears clear. Impact Investing is becoming mainstream and is being prioritised by both public and private sectors such that within a generation the characteristics we now associate with Impact Investing will be the norm. This will unlock huge capital flows which combined with modern and emerging technologies will have a transformational effect on deprived communities around the world by addressing such basic needs as food and water, energy, housing, micro finance and the environment. In terms of the environment, much Impact Investing is by necessity directed towards the developed world, and the need to accelerate the growth of a cleaner, lower carbon global economy.
More than anyone, the millennial generation is responsible for a sea-change in the way in which we think about employing capital. They have risen to the challenge, perhaps conscious that one day a future generation might ask: you were there, why didn’t you do something?
Sailesh Navsaria is Minerva group’s regional markets head for Africa. In his role Sailesh regularly comes in contact with Impact Investors and their advisers whilst Minerva group manages entities engaged in such investment activity.
For further information, please contact Sailesh Navsaria of Minerva Trust & Corporate Services on +44 (0)1534 702800 or email [email protected]
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