Investing in the right organizations has the potential to change the world. Impact investing is a type of investment that focuses on social or environmental benefits as well as financial or capital returns. Impact investing can be done through for-profit or nonprofit organizations that are looking to improve the world. It can be done in emerging or developed markets anywhere in the world as part of a growing market that provides capital to address global issues in sectors like “sustainable agriculture, renewable energy, conservation, microfinance and affordable and accessible basic services including housing, healthcare and education,” as the Global Impact Investing Network (GIIN) says. The market is estimated to be at around $502 billion as of April 2019.
According to GIIN, there are four primary characteristics of impact investing:
- Intentionality – The intention is one of the main things that differentiates impact investing from regular investing. The intention behind impact investing must be the desire to create measurable social or environmental benefits.
- Use evidence and impact data in investment design – Investments must have evidence or data that indicates the investment will have social or environmental benefits.
- Manage impact performance – Investments must be managed toward the specific intention of the investment. This would mean having feedback loops and means of communicating performance information to ensure that the investment is working toward the intention of the investment.
- Contribute to the growth of the industry – Impact investors must use shared industry terms to communicate their goals, strategy and growth. They also share information so that others may learn from their experience and adjust their investments accordingly.
Examples of Impact Investments
- The Omidyar Network – Pierre Omidyar, the founder of eBay, and his wife Pam obtained large quantities of wealth after the company went public and wanted to do some good with it. He set up a limited liability company (LLC) to make investments in early-stage innovations that are able to generate profits. He also set up a 501(c)3, a tax-exempt nonprofit, to provide grants for public goods and assistance to disadvantaged communities as well as subsidize the production of beneficial goods. The use of both of these allows the Omidyar Network to use for-profit capital and nonprofit grants to benefit society.
- Actiam Impact Investing – Actiam Impact Investing invested in Pro Mujer Bolivia, an organization that provides training and financial services to women in Bolivia. Janeth Villegas is one of many women who benefited from the program. Pro Mujer taught Villegas a number of skills including accounting and business management which empowered her to start her own chocolate company that she is now teaching her kids to run.
- Salkhit Wind Farm – Impact investors invested capital in Salkhit Windfarm, the first renewable energy generator connected to the central grid in Ulaanbaatar, Mongolia. The installation of this wind farm has reduced coal burning by 122,000 tons annually and has created over 3,000 local jobs.
- General Electric – General Electric (GE) provides impact capital through its Ecomagination Accelerator to finance energy conservation efforts. Ecomagination investments totaled $1.4 billion in 2014. “We want to inspire more companies to work together and tackle the world’s greatest resource problems,” Ecomagination’s global executive director Deb Frodl said. With this goal in mind, the company also aims to decrease reliance on fossil fuels in order to reduce greenhouse gas emissions.
- d.light – This for-profit company invests in and manufactures solar energy and distributes its products through the developing world. d.light’s mission is “To create a brighter future by making clean energy products universally available and affordable.” The focus here is on providing clean energy to the developing world which helps reduce dependence on fossil fuels and provides electricity to people who might not otherwise have it.
– Sarah Faure
Photo: Wikimedia Commons