Why Impact Investing?
In today’s capital markets, a number of investors seek to avoid harm or do good for the society. Some investors negatively screen for ESG (Environment-Social-Governance) risks, while others actively seek ESG opportunities. Further, there are investors who attempt to make positive social and environmental impacts through their portfolio strategy.
Impact investing can be defined as investment made with the intention of generating positive and measurable social and environmental impacts coupled with financial returns. The impact investing ecosystem consists of diverse organizations from the private, public, and social sectors.
According to The Financial Times, impact investing has become one of the hottest fields in asset management. The Global Impact Investing Network (GIIN) reports that the impact investing industry is already worth over 220 billion USD, exhibiting fast growth compared with 25.4 billion USD in 2013.
For example, UBS recently raised over $400 million for an oncology impact fund that seeks to address the growing need for early-stage cancer treatments. The fund targets an annual financial return of 10% while donating to cancer researchers. More and more individual investors, pension funds, hedge funds, private equity firms, foundations and family offices show their interests in impact investing. With these mainstream players’ active participation, impact investing is expected to grow even faster.
The UN’s sustainable development goals (SDGs) established in 2015 contributes to the growth of impact investing. The SDGs consists of 17 objectives with 169 targets covering social problems such as poverty, hunger, disease, and educational gap. As the UN set a deadline of 2030 to meet these SDGs, investors began working together to make the world a better place for all.
The International Finance Corporation (IFC) of the World Bank is one of the earliest movers in the field of impact investing. For the past 60 years, IFC has made investments that seek to resolve social problems in developing countries. Moreover, other conventional international development institutions such as the World Bank, USAID, and DFID pay a lot of attention to impact investing in order to address the big gap between the available resources and the resources needed to fund sustainable solutions to social problems.
Interestingly, the rapid growth of impact investing can be partly attributed to the large scale transfer of wealth to two groups of investors: women and millennials. According to Mark Haefele, global chief investment officer for the wealth management division of UBS, these groups care about sustainability and impact in their investing decisions. Accordingly, growth in impact investing is expected to persist in the 21st century.
Do you know any other examples of Impact Investing in other parts of the world? Try a web search and share links to what you find in the comments
© Hyun Shin, Hanyang University