Impact Investing Creating Social Impact
A global survey by Toniic shows that 79% of Millennials describe themselves as impact investors. In fact, a 2014 U.S. Trust survey indicates that it is Millennials more than any other generation who believe investment decisions are a way to express social, political and environmental values. Given the power and reach of Millennials, it is hardly surprising that the annual survey of impact investing estimates over $60 billion of capital being allocated to impact investing in 2015, with investors indicating an additional 16% increase in commitments for 2016.
The Global Impact Investing Network defines impact investing as investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments provide capital to address some of the world’s most pressing challenges in sectors such as sustainable agriculture, clean technology, microfinance, and affordable and accessible basic services including housing, healthcare, and education. As such, impact investing is the engine fueling the incubation, infrastructure and growth of social impact enterprises in developing and developed countries.
By creating mechanisms through which investors can both make money and address social and/or environmental challenges, impact investment offers the potential to expand the pool of capital available to fund innovative solutions across a range of asset classes and geography. Aavishkaar is a venture capital firm which recently provided two rounds of $25,000 in funding and bridge loans to a company called Servals Automation which sells kerosene saving stove burners targeting the rural poor in India. The social and financial impact of the funding and loan were manifold – products sold by Servals have impacted 450,000 low-income households with annual fuel savings of more than 72 liters of kerosene, resulting in financial savings of $70 per household. Another example, Lyme Timber, a forestry fund based in New Hampshire, has been able to utilize conservation contracts and industry experience to invest in sustainable forestry projects throughout the US. These projects help conserve local forests while delivering market to above-market returns to their investors.
An interesting characteristic of impact investing is the wide range of return expectations. Impact investments target financial returns that range from below market to risk-adjusted market rate. The New York City Acquisition Fund is an example where investors earned sub-market financial returns but has spurred the creation of similar funds in Los Angeles, Atlanta and Louisiana. City of New York and the Rockefeller Foundation invested $40mm in the affordable housing project and provided guarantees in the form of low-interest subordinated loans. The fund’s structure enables it to develop 30,000 units of affordable housing in a 10-year time span in New York City. By allowing for submarket returns on certain projects and focusing on the social impact, impact investing allows investors to be the agents of social change.
As impact investing grows globally, the ecosystem around it has grown to support it. ImpactBase for example, is an online search tool where investors can search for funds that fit with their investment interests and objectives. Enable Impact is an Austin-based platform where social entrepreneurs get introduced to and funded by impact investors. There are even specialized impact investing communities such as Toniic, which is committed to creating an environmental impact and Ford Foundation, committed to reducing poverty and injustice.
At Digital Union, we have a broad definition of impact investing – from investing in employees, in stakeholders and building businesses that invest in the communities around them. Come and see impact investing in action!
Maggie & Hector