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Culture / Sep 2019

Trend: Investing for Impact

For decades, if not centuries, philanthropy and financial investing have been thought of as separate disciplines – one championing social change, the other financial gain. But that’s no longer the case. Impact investment, which is on the rise in Australia and much of the world, can be defined as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”. Essentially, it’s money-making investments made with humanitarian and environmental factors in mind. The term itself is just over a decade ago, when it was coined by the Rockefeller Foundation in 2008, amidst conversations on how to use capital in non-traditional ways. 

While still in its infancy, Impact Investing is a rapidly growing sector. Last year the Global Impact Investors Network (GIIN) estimated that there is now $228 billion invested in impact investing assets (roughly double that of last previous year.)

While Socially Responsible Investment (SRI) is nothing new, impact investing is reaching a broader investment base and it’s considered that these investors are more engaged in the life cycle of the capital they invest; where once investors aimed at avoiding negative impacts, today they are focused on generating positive ones. 

So what constitutes impact?

There’s no question there are a wide variety of problems and challenges that need to be addressed globally. These include subjects such as the humanitarian crisis of refugees, the impact from climate change and extreme weather events, addressing ocean health and air pollution, and creating a clean energy system and sustainable modes of food production. And no conversation on Impact Investing can be undertaken without mentioning the state of education and healthcare. 

A useful guide – for both consumers and businesses – is the Sustainable Development Goals (SDGs) also known as “Global Goals,” launched in 2016 by The United Nations. According to the United Nations, “The Goals are interconnected and in order to leave no one behind, it is important that we achieve each Goal and target by 2030.”

In just over a decade, Impact Investing has had a considerable influence across the financial world. In what some see as a watershed moment Blackrock, the world’s largest investment firm with over $6 trillion of assets under management, is telling companies to consider their societal responsibilities. In fact, Blackrock CEO Larry Fink stated in his annual letter that a corporation needs to “serve a social purpose. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”

Case Studies 

The range of Impact Investments is endlessly diverse. They can be made in both emerging and developed markets, and generate a range of returns from below market to market rate. Among the investing strategy’s numerous success stories is Dodla Dairy. The 4th largest private fresh dairy product company in India is a considered an eminent “success” story investment by Rise in 2017. Dodla sources milk from more than 250,000 small farmers and Rise estimated that investments in Dodla would increase farm families’ annual incomes by 73 percent, from $425 to $735. 

As an Australian example, STREAT provides disadvantaged young men and women in Melbourne with the opportunity to build sustainable, long-term careers in hospitality. Based on the entrepreneurialism witnessed in food carts in South East Asia, STREAT provides jobs for at-risk youth aged 16-24, alongside six month industry training, well-being and social support programs. STREAT was one of the first equity-raising social enterprises in Australia, and anticipates that its shareholders will accrue investment returns of between 7-12% per year. Income is generated through the food-service business of the enterprise.

A Strong Future

As Philanthropy becomes increasingly targeted and outcome driven, it is clear that Impact Investing is a model with a huge future.  Millennials are particularly engaged in impact investing. A recent study found 77 percent of affluent millennials include impact investments in their portfolio.  They unashamedly want to align their economic and philanthropic goals and this is good for business and good for society.