Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Ratings system, social stock exchanges, trading platforms and advisory firms
Around the same time that the GIIN was launched, the development of a rating
system for impact investments called the Global Impact Investing Rating System
(“GIIRS”) was initiated. Related industry services such as impact investment stock
exchanges, online trading platforms, and advisory firms are also in early
development stages. Most of this growth is possible because increased interest in the
market and the developments in the broader economy have led more professionals to
pursue careers in impact investing, including experienced investors and entrepreneurs
starting businesses that play an important role in the impact investment ecosystem.
Investment opportunities are growing
One of the challenges in making impact investments is sourcing transactions. Many
impact investment recipients are small companies and the majority of deal sizes we
analyzed from our investor survey are less than $1m 10 . Particularly for investors
based in different regions, the costs of due diligence on these investments can often
challenge the economics of making such small investments. While demand has been
growing from investors, there has been growth in the supply of social businesses able
to receive the capital currently waiting to be allocated into impact investments.
Investments: Business sectors, impact objectives,
investment structures and geography
An investor who begins to analyze impact investments will immediately notice that
the opportunities for investment span a wide range of sectors, impact objectives and
geographical regions. In order to manage the investment portfolio, some investors
will limit their scope to certain sectors, objectives, structures or regions. In this
section, we lay out a framework that describes how some impact investors think
about constructing a portfolio of impact investments.
A two-dimensional sector framework
The set of impact investments is unique in that there are two dimensions that can
characterize each underlying investment: each investment will operate in a certain
business sector (e.g. healthcare, education, housing – see Figure 6), and it will be
designed with the intent to address one or more impact objectives (e.g. mitigate
climate change, improve basic welfare for people in need). In some cases, an
investor’s impact objective (i.e. improving health outcomes) may be tightly
correlated with the business sector (i.e. health services) where it operates. In other
cases, the relationship between sector and impact objective might be more
complicated. For example, an investor whose impact objective is to help BoP
populations build income and assets may invest in a financial services company that
allows entrepreneurs to start a business, or in a health services company that
generates jobs and income in the community where it operates.
This two-dimensional characterization is meant to describe the landscape of business
sectors and potential impact objectives, but it is neither exhaustive nor exclusive. Nor
will an investment necessarily fall into only one category within the business sectors
or impact objectives. The impact objectives of an investment in Selco Solar in India,
which sells solar home systems to provide energy access for people without access to
electrical grids, would incorporate climate change mitigation with improving basic
welfare for people in need, for example.
10 See Section 3. Financial return expectations for more details.
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