What is Impact Investing and what can we learn from it?
Impact investments are investments made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return. Investments are made to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education. Over the next three decades £22.5 Trillion will be invested in one of the largest generational wealth transfers. There are huge changes in the global economy with new social and environmental problems evolving alongside the impact of technology, so the future for investors and people with the skills and talent to solve these challenges is exciting. It’s a topic of high interest among the Millennials and Business School Graduates and will present opportunities for those with young and old investor concepts and principles to work together and shape the future.
With raised awareness among decision makers, bankers and brokers, smarter thinking is becoming more and more common place to deal with the challenges of global social problems. Preparing where possible for global shifts that may result from climate disruptions / climate change, migration, technology and many other factors become crucial when making investment decisions. Being aware of the outcomes and impact on the vulnerable, impoverished areas in our world and our planet as a whole is universally acknowledged as being very important. Governments, governing bodies and the private sector are increasingly prioritising social impact on their agendas; they need to, with the rapidly growing population which is anticipated to increase by more than 30% in the next 35 years (according to the UN Dept of Economic & Social Affairs). With such an increase in population it will place constraints on resources such as water and food and it will create new global health challenges and threats to social stability.
If plans aren’t in place to deal with these global shifts the result of reactive responses to meet the needs that arise could mean that they are difficult to finance. Why is this the case - because they are not commercial. These challenges can be difficult to tackle because they are deep rooted and need huge overhauls to ensure the basics are met on a big scale. It’s becoming clear that large profits are not necessarily aligned with maximum impact. The lesson to learn is that it’s important to identify the result of the ‘outcome’ in the long term when considering the ‘output’ that will need to be invested. It would be ideal if investors collaborate and partner together to avoid reactive responses and plan as much as possible.
Social financing activities will increase through products like microfinance, advancing technologies such as blockchain, community bonds environmental finance, economic development finance, such as green and infrastructure bonds and investments in larger job creating businesses.
There are big opportunities for savvy financial institutions and investors in this rapidly evolving landscape. It’s time to act now to overcome barriers. We need to make the range of investment opportunities with different levels of social impact clearer for investors. We need to address the issues, such as a lack of products that meet investor risk and return requirements, limited track records and short-term incentives that make investors who invest primarily for financial performance turn away. Together, the financial community can identify and implement innovative solutions that greatly increase the likelihood of achieving key global development goals, while unlocking opportunities for investors.