What impact investing means to me as a business leader
Impact investing is the focus now for individuals and institutions around the world. Already growing fast as a sector, COVID-19 has ramped up the urgent need for a truly collaborative approach across all stakeholders.
This is why I’m a member of Impact 17+1., a group of business leaders who are taking action through impact investing. But before we look a bit more closely at what impact means to members, here’s a brief introduction to impact investing itself.
What is impact investing and how does it work?
The simplest explanation of impact investing is that it covers investments made into funds/organisations/companies that will make a return and create a positive social or environmental impact. These investments direct money into initiatives to improve the environmental and social challenges facing humanity.
Impact investors, therefore, are looking to put their capital into non-profit organisations, investment funds and businesses that can demonstrate their environmental social and governance (ESG) credentials. This could be in renewable energy, micro-finance, sustainable agriculture, healthcare, education and much more. This type of investing goes across all asset classes, including fixed income, private equity, venture capital and debt.
While regulatory standards and philanthropy traditionally attempted to mitigate the damage done by the corporate world, there have long been individual investors choosing to be socially responsible with their strategies. This is now becoming more mainstream for both individuals and institutional investors.
It took until 2007 for the term ‘impact investing’ to emerge, and it’s now used to describe an investor commitment to measuring the social and environmental performance of financial decisions. Today, impact investors apply the same kind of analysis to the ESG impact of their investments as their financial returns.
How much is the impact investor sector worth?
Over the last five years, the number of funds actively engaged in impact investing has grown significantly. The sector’s growth is at least partly due to the vagaries of traditional philanthropy and international development. Add in a global pandemic, and there has been a distinct shift towards impact investing at all levels.
Compared with the global equity market, impact investing is still small. It’s currently estimated as being worth $715 billion according to the 2020 Annual Impact Investor Survey. The biggest sectors in terms of asset allocation include financial services, micro-finance, energy and housing.
The Global Impact Investing Network (GIIN) defines the key characteristics of impact investing, based on the following four tenets:
There must be an intent to contribute to measurable social and environmental improvements through the investment. Impact investors want to actively grab opportunities to solve problems. This is what separates impact investing from other approaches that may still include some considerations.
When designing strategies, impact investors will use evidence and data to create intelligent investment decisions.
Again, this is about the intention behind the investment and includes measuring the performance. Investors must therefore implement workable feedback loops to understand how the investment is performing.
Investors that use impact investor practices share best practice and learnings to encourage the growth of the industry sector.
The difference made by global impact leaders towards a better future
Back to the Impact 17+1 Club and my involvement in this forward-thinking, innovative network of impactors. Essentially a think tank incorporating a community of business leaders and like-minded impactors from around the world, Impact 17+1 evolved from the motivation of taking responsibility to create a better future by taking constructively compassionate action right now.
We intend to build a global network of impactors, determined to nurture, support and grow impact leaders throughout the world. The club provides iTalk, which is a platform for impactors to raise awareness and share challenges and opportunities. The aim is to continue to forge close collaboration with businesses, non-governmental organisations (NGOs), other investors and any other stakeholders to promote social innovation.
To me, impact is about making a real, tangible difference to improving our surrounding environment and creating solutions to the challenges facing us all. The pandemic has pushed impact investing further up the agenda, as governments and corporations everywhere recognise the urgent need to meld financial returns with measurable benefits to the world around us.
While the traditional assumption has been that impact investment and impact businesses make less money, the opposite its true. By structuring a business around purpose rather than profit, you actually end up making more money. For example, businesses with at least 50% female board members tend to do better financially than those that don’t focus on diversity. Impact does not come at the cost of profit, but rather increases it.
Find out what impact means to members of Impact17 here.