With the development of financial technology and energetic Blockchain innovation this year, the market for Impact Investing has been experiencing major expansion, as more and more investors look to generate profits beyond just financial, using digital investment methodologies.
What is Impact Investing?
Impact investing involves financial investments particularly contributed to entities that engage and generate positive footprints on society, including those who promote social, environmental, and sustainability efforts.
In an asset class report by J.P. Morgan, the Global Impact Investing Network (GIIN) and the Rockefeller Foundation, Impact Investment was defined as “investments intended to create positive impact beyond financial return.”
The report also discussed distinctions between Impact Investors from the more mature Socially Responsible Investments field, by distinguishing impact investors as participants looking beyond minimizing negative societal impact and risk mitigation, and more towards the proactive generation and implementation of social benefits and solutions to social problems, through investing in entities with measurable generation of positive impact alongside financial return.
Impact Investing shown as a continuum of social investing — Source: Responsible Investment Association Canada
Uncompromised Financial and Social Profit
A common misconception surrounding impact investing is that there is a binary divide concerning investing in financial instruments for profit, and philanthropic impact investment.
Some believe that impact investment is a venture that involves purely philanthropic returns, and this disconnect often results in unrealistic expectations, that cause investors to pull funding from impact startups.
“The binary between investing and philanthropy is a false one.”— Sapna Shah of the Global Impact Investing Network (GIIN)
In fact, survey data from the GIIN’s 2019 Annual Impact Investor Survey identify that the majority of impact investors to be pursuing competitive, market-rate returns.
Financial targets by impact investors — Source: GIIN 2019 Annual Impact Investor Survey
The GIIN report also saw that social and environmental impact portfolio performances dominantly met or exceeded investor expectations, in both social and financial results.
Investor Expectations vs Investment Performance — Source: GIIN 2019 Annual Impact Investor Survey
The secret to successful impact investment? Investors with clear expectations of their participation, and impact entrepreneurs with clear, long-term plans that create a cohesive market. In an interview with Forbes, Jimmy Scavenius, founder of an education organization in Malawi, Kwerafund, identified a major factor in successful impact investing as entrepreneurs presenting sustainable structures that are approachable and attractive to investors: “It’s up to social entrepreneurs to ensure that they are self-sustainable in the long-run and can create a pull market.”
Video introduction from Forbes explaining the dual financial and social profitability of Impact Investing
A Growing Market
For investors, the Impact Investing trend has proven to be a growing focus for years to come. Investors today are seen as much more proactive and focused on creating a positive impact intentionally, rather than avoiding negatively contributing to societal issues.
Tremendous growth has been seen in the impact investment field, motivated by investor demand across many asset classes around the world. In a 2019 data report by the OECD, global social impact investment has been shown to be growing rapidly, with a number of new entrants to the market, and attraction from “mainstream commercial finance, including institutional investors, asset managers and multinational companies”.
Number of social impact investment policy instruments mapped by region and perimeter, growing in every region. — Source: OECD
The GIIN reported a total of impact investors over 200, with survey respondents making over 13,000 deals in 2018, and an estimate of over 15,000 deals planned for 2019. Altogether, respondents to the GIIN survey plan to invest $37 billion USD into 15,216 impact investments in 2019, expressing growth in investment deals compared to 2018, of 13% in volume of capital invested and 14% in the number of investments.
Table expressing the volume of capital and number of investments 2018-2019 — Source: GIIN 2019 Annual Impact Investor Survey
Digital Impact Investing
Amidst the recent Digital Impact Week summit in London, innovations in digital currencies have been seen to be moving impact investing into a more transparent and measurable market.
The 2007 J.P. Morgan asset class report explains that impact investing, “require[s] the management of social and environmental performance (for which early industry standards are gaining traction among pioneering impact investors) in addition to financial risk and return.” Something intangible that has previously been hard to accurately measure and quantify in relation to financial assets, blockchain technology has pushed the need for measuring impact. Professor Olinga Taaed of the Centre for Citizenship, Enterprise and Governance (CCEG) explains the movement in impact investment by blockchain innovation.
“What blockchain does is to move digital assets from A to B, like money, land, diamonds, but of equal value is love, happiness, kindness. […It] allows impact to become transactable by aligning values with value. This is the missing piece of the jigsaw puzzle called impact investment, to help stimulate impact based consumerism,”
Big data and AI also have been advancing efforts in accurately measuring positive social impact, resulting in a more transparent and clear look at impact investment. Blockchain can then plot and record an accurate footprint of impact efforts, transforming impact investment analysis and identification.
And with increasingly digital climate, financial institutions are enthusiastically adopting blockchain technology, providing an exceptional opportunity for impact investment to take up a digital transformation.
With Impact Investment’s particular power to potentially bring about global, long-term support to social, environmental, and sustainable impact on society, opportunity for digital transformation will be a natural yet crucial step forward. Big data and blockchain technology will bring impact investment the accountability, transparency, and movement it has needed to sustain its upward trend in market performance and presence.
And to end, an inspirational call-to-action from GIIN’s Sapna Shah, at the Global Impact Investing Network Investor Forum 2019 on the very impact, of impact investment:
“If we want to seize this turbulent moment, we need to be bold, and we need to be big. The time is now, to change our relationship to money, to change what it means to invest truthfully, time to change capitalism, for better systems, for a better world.”
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