DIY Investor Magazine
/
2015 Issue
14
WHAT IS IMPACT
INVESTING?
The Social Stock Exchange was established in London in 2013, with a mission to create an
efficient, universally accessible marketplace where impact investors and impact businesses of
all sizes can come together. Tomas Carruthers gives an overview of what Impact Investing is
and why it’s now growing in popularity so rapidly
Impact investing is a dual mandate approach to
investment. Impact investors don’t just want a financial
return from the businesses that they invest in, they
want to see a positive social impact too; think the
complete opposite to the type of investing that caused
the near cataclysmic credit crisis.
But it’s not about philanthropy, although philanthropists
do make impact investments; it’s about investing in
business that are trying to make a difference to society,
but also want to financially reward the investors who
back them. Investing for impact doesn’t necessarily
mean compromising your returns.
The theme has historically been popular with high net
worth individuals and private equity houses, but with
greater understanding what was once the playground
for the rich and retired has now gone mainstream.
HOW DO I IDENTIFY IMPACT INVESTMENTS
To qualify as an impact investment a business MUST
have a stated social or environmental goal and provide
evidence of the positive impact it has generated
alongside the financial performance – this is important
to the integrity of the impact investing market as it
expands.
The social impact must be quantifiable, if it’s not it’s not
an impact investment.
For instance, a micro-finance organisation looking to
reduce homelessness, a social impact bond aiming to
reduce recidivism, or a ‘cleantech’ firm creating a new
environmental product to offset carbon emission; they
must all be able to put a figure on the social impact
they are looking make.
This forms the basis of impact measurement and
enables a target-driven assessment of the outcomes.
WHERE CAN I FIND IMPACT INVESTMENTS?
There are a number of areas for investors to consider
Classic sectors include those designed to meet basic
human needs
•
Agriculture
•
Water
•
Housing
•
Education
•
Health
•
Energy
•
Financial services.
The type of investment also offers further choice; one
can invest directly in an impact enterprise, through
an intermediary such as an impact investment fund,
or by removing risk through acting as guarantors for
example.
IMPACT INVESTING VERSUS ETHICAL INVESTING
The main benefits of impact investing:
•
It seeks to positively include - rather than exclude –
investments
•
Demands that social impact is quantifiable
•
Financial returns are requirement not a desire
There are other forms of ethical investment such as
Socially Responsible Investing (SRI) and investing that
incorporates a screening for environmental, social and
corporate governance (ESG) but:
•
Both often seek to exclude ‘bad’ investments rather
than include businesses seeking to make a positive
social impact
•
Making a positive social impact is not at the core of
their businesses
•
Measuring social impact is not a requirement
