What is Impact Investing?

Impact investment provides opportunities to meet a range of challenges facing people and the planet that cannot or will not be solved by traditional philanthropy or government funding alone.

Introducing Social Impact Investment

Impact Investments are investments that provide a blended return: both a financial return to the investor, and an intentional, measured, positive impact on people and/or the planet. Impact Architects’ UK-based international advisor David Carrington makes the following comment:

It is the investment of funds in a social purpose organisation with the deliberate intention that those funds will help to secure clear, positive, and measurable social outcomes – a public benefit – while also generating a financial return to the investor, enabling the funds to be recycled and used again to support further activities.

There are many people and organisations exploring social impact investing, and they come in all shapes and sizes, from very different starting points, and with very different expectations. The definition I used may sound straightforward, but it embraces a vast breadth (and depth) of investment activity. Social impact investing is often pictured as a long spectrum of activity, with individual philanthropy and charitable foundations at one end and commercial and institutional finance at the other. Those interested social impact investing are approaching the centre of the spectrum from both ends. Each of them combines a hunt for social change and for community or public benefit or “impact”, with a focus on how a financial return can also be generated over time.

Source: The Rise of Impact: Five Steps Towards An Inclusive And Sustainable Economy, UK National Advisory Board On Impact Investing, 2017 & Impact Management Project, 2017.

Why Consider Impact Investment?
The primary reasons to consider impact investment as an alternative to traditional philanthropy, bank debt, or equity investment include:
- Access to financial resources that can complement philanthropy to further the mission
- Investment from third parties as an alternative to traditional borrowing
- Preferential investment terms and conditions, i.e. patient capital
- An additional layer of capital development financing for complex developments.
Imperatives When Considering Impact Investing
- Understanding how to gain access to the right kind of money at the right time on the right terms for the right types of projects
- Intentional and measured social and/or environmental impact at the heart of the investment, directly linked to the theory of change
- Formal involvement of key stakeholders and supporters in the development of a sound value proposition.
Key Considerations When Impact Investing
- Impact investments target a range of returns, from below market to market rates, depending on investors’ strategic goals (e.g. finance first or impact first) and the opportunities associated with the investment.
- Importantly, both the investor and the investee enter impact investment based on the intention of a blended return. It is essential that there is clarity for both parties on the basis for financial return and impact measurement rigour.
- The investment will deliver a positive impact on people or planet that the market would have achieved otherwise