By Bill Burckart
This is the first in a series of posts on impact investing for MMI’s membership.
Some of you may know about impact investing. Some of you have never heard of it. Some of you may think it’s about protecting the Earth from a meteor collision. Whatever you know about impact investing, one thing is for sure: You need to pay attention.
Impact investing is not, in fact, the growing meteor-preparedness asset class, but instead a movement of investors looking for returns beyond just financial. It is comprised of investors both individual and institutional who are interested in making double (social or environmental, and financial) and even triple (social, environmental, and financial) bottom-line investments. These investments can come in all shapes and sizes—from innovative social housing schemes that leverage government support like Minha Case, Minha Vida (MCMV) in Brazil to Years of Living Dangerously in the US, a multi-platform media project designed to bring climate change to the forefront of the national agenda—but all have a similar goal: making more than just money.
A recent wave of interest has capitalized off of the “more than money” mantra. Innovations like microfinance (pioneered by the Nobel laureate Muhammad Yunus and Grameen Bank) and the growing wave of consumers interested in aligning their values with their purchases (as well as their investments) have made it easier and more profitable for investors to take a second look at companies and opportunities with a social focus that they may have passed up before. Many individual investors, in particular, are realizing their philanthropic motivations can be integrated with their investments and can create the same or even more impact through for-profit investments as with donations.
Impact investments are not just about social returns, though. There are significant financial benefits in this emerging asset class. A report from JP Morgan and the Rockefeller Foundation has estimated that there is a potential of a USD 400 billion- to USD 1 trillion-investment opportunity in impact investments—with profits between USD 183 billion and USD 667 billion. A report for Money Management Institute’s membership noted that some impact investments have yielded returns as high as 20 percent.
Major players have also entered the impact investing space. Officially, the term was coined in 2007 when the Global Impact Investing Network grew out of a small group of investors convened by the Rockefeller Foundation. The network—GIIN, as it is commonly called—has grown over the intervening years and now includes major financial firms like Deutsche Bank, Morgan Stanley, and JP Morgan, the latter of which has committed USD 100 million to impact investments. Even the Small Business Administration has put skin in the game and launched a $1 billion impact investment fund in 2011 focused on small businesses with a social mindset.
A community of investors, researchers, and entrepreneurs has sprung up around impact investing, providing support in order to help build the infrastructure needed for a robust industry. Social Capital Markets—or SOCAP—is an annual convening of leaders in the industry that brought over 1,600 to its annual event last year. Blogs, associations, and experts in the field have been popping up all over the impact investing landscape.
MMI’s Fall Solutions Conference in 2012 offered further evidence of the growing interest and enthusiasm for impact investing, with a number of members checking out our Impact Economy exhibition and inquiring about designing an effective impact investment strategy and developing a robust pipeline of deals—“priming the pump” as one leading impact investor would call it.
With the recent re-launch of its website, MMI decided to partner with Impact Economy to explore these trends further. With this series, we hope to help MMI’s members make the transition to impact investment. We aim to tackle the basics, provide practical insights, share resources and challenge misperceptions about the emerging field. At Impact Economy, we have seen the challenges and opportunities of this new industry and we would like to share what we have learned with you. We hope you will join with us on this journey.