In today’s capital markets, a number of investors want to do good for society, or at least want to avoid harming it. Some investors negatively screen for Environment-Social-Governance (ESG) risks, while others actively seek ESG opportunities. Moreover, there are investors who attempt to make positive social and environmental impacts through their impact investing strategy.
The Global Impact Investing Network (GIIN) defines impact investing as “an investment made with the intention of generating positive and measurable social and environmental impacts coupled with financial returns.” The GIIN reports that the impact investing industry is worth over 220 billion USD this year, compared with just 25.4 billion USD in 2013. 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. For instance, 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 are showing interest 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 have contributed to the growth of impact investing. The SDGs consist of 17 objectives with 169 targets covering social problems such as poverty, hunger, disease, and education gaps. The UN set a deadline of 2030 to meet the SDGs, and many investors began working together to achieve them in partnership with players from private, public, and social sectors.
The International Finance Corporation (IFC) of the World Bank was 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. Other conventional international development institutions, such as USAID and DFID also pay a lot of attention to impact investing in order to address the big gap between available resources and the resources needed to support sustainable solutions to social problems.
According to The Financial Times, 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. They tend to care about sustainability and the impacts that their investing decisions would have for the society. Subsequently, growth in impact investing is expected to sustain in the coming decades.
Can you think of any good examples of impact investing in different parts of the world? Try a web search and share links to what you find in the comments.
© Hyun Shin, Hanyang University