Social Impact Investing

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Impact Investments: An emerging asset class Global Research 29 November 2010 Foundations’ social duty demands high social impact By contrast, many foundations, including the Esmée Fairbairn Foundation, the Rockefeller Foundation and the Bill & Melinda Gates Foundation, making programrelated investments (PRIs) primarily to advance a social goal. As a result of prioritizing the social impact over the financial return, these investments can acceptably deliver less competitive rates of financial return. Many private foundations in the US qualify their impact investments under the Program Related Investments section of the US tax code, which requires an investment to prioritize social impact rather than financial return. Social impact expectations Investors’ expectations are largely anecdotal By definition, impact investors finance businesses that generate positive social impact alongside financial returns; therefore, investments that simply avoid negative social consequences will not deliver sufficient impact to meet investors’ expectations. Generally speaking, however, expectations of social impact are largely anecdotal. Without standards and benchmarks for non-financial performance, investors must rely on their own judgement and proprietary systems to assess whether an impact investment is making progress toward social goals. Indeed, only 2% of surveyed impact investors reported using a third party impact measurement system – the rest use either their own proprietary system or the one used by the company in which they invest 14 . Similarly, without average performance benchmarks, investors are limited in their ability to understand how the social performance of their investments compares to those made by other investors. Comparable data will be available only once standard impact metrics are employed Because most impact investors use proprietary impact measurement systems, there is little consistent quantitative data about the social impact actually achieved by impact investments made to date. Many investors have recognized the limitations of so many bespoke approaches and are actively working to build and contribute data to standardized frameworks. Rigorously assessing progress toward social impact expectations will only be possible once standard social metrics are adopted. Risk appetite Given the variety of financial return and social impact expectations, it is unsurprising that risk appetite can also vary. Most impact investing is done in private markets, typically through private equity or debt instruments, and guarantees. The businesses themselves are often small-scale and may operate in emerging countries where political and country risks add to the risks of the company's standalone success. While investors must approach these investments with a commensurate risk appetite, there are opportunities to make impact investments with lower risk profiles as well. Since its inception in 2002, the UK’s Charity Bank has earned steady returns of about 6% from lending to charities and social enterprises with realized losses of only 0.3% of their loan portfolio 15 . Notwithstanding recent turmoil in India’s microfinance market, empirical evidence suggests that microfinance institutions in some regions have been more resilient than other financial institutions in recessionary environments 16 . Clearly, the risk of an impact investment will be particular to the 14 See Section 3. Financial return expectations for more details. 15 Charity Bank 2009 Annual Report and interviews. 16 Microfinance: Shedding Light on Microfinance Equity Valuation Past and Present, J.P. Morgan and CGAP, February 3, 2009. 22
Impact Investments: An emerging asset class Global Research 29 November 2010 investment, including its stage, sector and geography, and any investor will need to assess these risks accordingly. We discuss the risk management of impact investments in more detail in Appendix I: Managing impact investments. Across investors and instruments, a vast range of opportunity Having characterized the current landscape of impact investments, we see that the set of impact investments spans a broad range of sectors and regions. In a later section, we focus on those investments that deliver products or services to BoP consumers to estimate the size of specific segments of the market. 23
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Turning the Improbable Into the Exc
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6. 1 We disseminate Quarterly publi
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23 “His master replied, ‘Well d
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Domini, shareholder advocacy and co
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Two good things came out this resea
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Fund Azzad Ethical Mid Cap Fund Bri
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Fund Fund A Praxis Growth Index Fun
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development in the US, or are made
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concern, and submitting and voting
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sustain land trusts, to a meeting o
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that are often excluded from market
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Some organisations that have used S
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it helps identify the critical sour
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and shareholder trust through posit
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Approaches Some commentators have i
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Wieland and Handfield (2013) sugges
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EthicalQuote (CEQ) tracks reputatio
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Displaying commitment to CSR is one
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Brand Differentiation CSR can help
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takes health and safety, diversity
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advance with the practice of CSR wh
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Stakeholder Influence One motivatio
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Regulation Fifteen European Union c
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jurisdictions. E.g., some jurisdict
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"Impact investments can be made in
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venture capital community. Investor
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countries via local intermediaries.
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determining views of affected commu
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Another measure of economic impact
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The Board for the CCEG was to inclu
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17 Love Relationship Online dating
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Social Value Act 2012 legislation.
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Development released a report outli
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Benefits and Costs of Social Impact
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UK On 18 March 2010, Secretary of S
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US Massachusetts: The second of two
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US Federal: The U.S. Department of
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would establish a five-year pilot p
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We are dedicated to finding ways to
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In the past, public monies have oft
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indicate that more Americans want t
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Youth" to "Opportunity Youth" in or
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income must file a Form 990. The fo
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In its first three years, SIF has a
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The Office of Social Innovation pri
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of Management at UCLA; and launched
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Notes _____________________________
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Investing for Impact Case Studies A
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Contents What is Impact Investment?
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What is Impact Investment? Impact I
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A case study approach in an asset a
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Segments of Impact Investors High T
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Foundations Like high net worth ind
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in the developed and the developing
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By creating mechanisms through whic
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Asset Allocation Framework Asset cl
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Cash Shorebank Deposit Program fina
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Mezzanine/Quasi Equity Instruments
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Venture Capital Bridges Ventures CD
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Real Estate JP Morgan Urban Renaiss
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absolute return (hedge funds) BelAi
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senior debt Root Capital Impact Fir
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Venture Capital Aavishkaar Impact F
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eal estate Ignia Impact First Inves
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senior debt Root Capital Layered St
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The New York City Acquisition Fund
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Appendix Methodology The Investing
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Websites •• Bridges Ventures: h
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Cash Quasi Equity Public Equity Buy
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SOCIAL IMPACT INVESTMENT: BUILDING
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Page 273 and 274: SOCIAL IMPACT INVESTMENT: BUILDING
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Impact Investments: An emerging ass
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Advocacy Foundation Publishers The
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XVI for Drug-Free Communities Landm
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Vol. VIII 2022 ComeUnity ReEngineer
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Vol. XV 2029 Inner-Cities Revitaliz
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The e-Advocate Journal of Theologic
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Issue Title Quarterly Vol. I 2015 I
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The e-Advocate Juvenile Justice Rep
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2018 - The Theological Law Firm Aca
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About The Author John C (Jack) John
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