NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 14, 2019

By Bhakti Mirchandani

Impact investing—investing with the intention of generating positive social or environmental impact and measuring the impact—was once the domain of nuns and other faith-based investors, who wanted their portfolios to reflect their values. Then billionaire capitalists like Paul Tudor Jones and trillion-dollar financial giants like JPMorgan got in on the game, building a range of impact products and propelling the impact investing market to over $500 billion. While most talk revolves around tilting equity portfolios towards impact, there’s an enormous opportunity for lenders, who are increasingly inserting impact-oriented provisions into credit agreements. There is huge potential: at 26% of impact AUM, private debt is the largest asset class within impact investing.

Early impact investment loan agreements often were virtually indistinguishable from commercial loan agreements. As impact investing has grown over the past decade, impact loan agreements have become increasingly focused on protecting and enhancing impact performance.

Photo courtesy of GotCredit.