The Rapid Rise of Impact Investing
Wednesday, August 12, 2015
Investing in companies that create social, environmental and economic value is a trend that has been increasing worldwide. This type of triple-bottom-line investing is commonly called impact investing and last year, financial services giant JPMorgan estimated that the market was worth $60bn worldwide — and growing.
JPMorgan, Monitor Deloitte and the Calvert Foundation predict that the market will increase to between $400bn and $1-trillion worldwide in the next five years; and with 22% of global-impact enterprises located in Sub-Saharan Africa, much of the opportunity lies on this continent.
The rise in impact investment is attributed in part to the 2008 financial crisis and the growing awareness that making money for the sake of making money alone is harmful to society and business interests. There has been an increased understanding that some of the most pressing global issues — inequality, climate change and unemployment — pose large financial risks if left unaddressed. This has led to numerous initiatives examining how investing in companies with social and environmental agendas can help uplift and improve living conditions for people, while yielding strong financial results.
The rapid rise of the industry has resulted in a host of new investment products and initiatives, yet there is still a considerable lack of understanding about impact investing, and a lack of substantive information advising investors how to implement an effective impact-investment strategy, most particularly in Africa.
One of the most enduring misconceptions about impact investment has been that it is a trade-off, where financial returns are sacrificed in favour of social return. This is rooted less in fact than in fear. The industry is starting to collect quantitative data providing evidence that a company can be for-profit and for-purpose, without making long-term sacrifices to either goal.
A study conducted by the Global Impact Investing Network and JPMorgan shows that of 143 investors, about 27% said the social impact of their investment had outperformed their expectations. Financially, their impact investments had not beaten their expectations but only 9% were disappointed with the returns. The investors indicated they would invest a further $12.2bn this year in impact investments, up 16% from last year. As it points out, the real growth rate is probably even faster, considering that as many financial institutions are only now entering the market.