Impact Investing is the next level of investing beyond ESG. The differentiator between ESG and Impact Investing is that Impact Investments aren’t just made by avoiding negatively-impacting investments, but rather focusing on companies that make significant positive impact through any of these vehicles.
Although the idea of ethical investing, or socially responsible investing has a long history dating back to Biblical times, it’s reported that the term “Impact Investing” was coined in 2007 by a group of investors who met at the Rockefeller Foundation’s Bellagio Center “…to discuss a new form of financial investment that could achieve a social or environmental impact. Antony Bugg-Levine, who worked for the Rockefeller Foundation at the time of the meeting, is often credited with coining the term (GIH.org).”
HISTORY OF IMPACT INVESTING
Today, the largest Impact Investors in the World categorized by the amount of Assets Under Management are the following (Investopedia).
#1: Vital Capital Fund – $350 M AUM
Vital Capital was formed in 2011, and is a leading private equity Impact Investment fund focused on sub-Saharan Africa. It is based in Switzerland, and has offices in Cyprus and Ghana. They focus on healthcare, housing, employment, and infrastructure. Their Mission Statement is:
“At the core of every investment and decision we make at Vital is our impact mission. Our goal is to improve economic, personal and social well-being for low and middle-income communities in sub-Saharan Africa.”
Photo Source: https://www.vital-capital.com/impact/
Vital Capital Examples Portfolio Companies:
- Aldea Nova – Agro-Industrial
- WaterHealth International – Clean Water
- Luanda Medical Center – Healthcare/Medical
#2: Triodos Investment Management – $335 M AUM
Triodos Investment Management has been around since 1995 and manages over a dozen sustainable investment funds. It is a subsidiary of a Netherlands bank called Triodos Bank, and invest in categories like “Energy and Climate,” “Financial Inclusion,” “Impact Equities and Bonds,” and “Sustainable Food and Agriculture.” Although Investopedia reports they have $335 M AUM, their website states they manage $4.6B Euro, which either way makes them a top Impact Investor.
Their Mission Statement is as follows:
“We believe how we invest defines the world we want to live in, recognising the instrumental role and creative power of capital when used consciously. As a financial institution, we use money as a driving force towards a society that is humane, ecologically balanced and works for the benefit of all.”
Photo Source: https://www.triodos-im.com/about-us
Examples of the Holdings in one of Triodos’s Impact Funds, the “Triodos Pioneer Impact Fund:”
- Vestas Wind Systems – Wind turbine
- Danone – Food
- Fresenius Medical Care – Healthcare/Medical
#3: The Reinvestment Fund – $300M AUM
The Reinvestment Fund is a non-profit financial institution that aims that funds mission-driven opportunities in underserved areas. The Fund is based in Philadelphia, Pennsylvania.
Their mission is:
“To [reimagine] neighborhood revitalization by combining expertise, analysis and creative approaches to investing with a social purpose.”
Photo Source: https://www.reinvestment.com/financing/
Examples of their initiatives include:
- ReFresh Network – Access to healthy food
- Early Childhood Education
- Pay for Success Financing – Social Impact Bond
Earlier this month, 1200 global impact investors and professionals came together in Amsterdam for the 10th annual Global Impact Investing Network Forum. The forum that started with less than a hundred delegates have grown over the 10 years shedding light to impact investment topics and developed a focus prevalent worldwide issues such as the UN’s Sustainable Development Goals that aim to end global problems such as climate change, poverty.
Botha places emphasis on the importance of impact investments, this is because, apart from being able to support our existing global issues, it also has the capability of guiding investors and businesses to become more responsible by placing focus on non-financial risk and measurable objectives. The main goal of impact investing is to keep the investor’s goals aligned with the steps they are taking.
Points of article:
- The way we look at climate risk today is very different, more and more firms are being urged to take legal action and placing focus on climate risk when making their portfolios
- The appetite for various other areas of non-financial risk has also been evolving and various developments in finance structure, like blended finance, have led to increased security and confidence.
- Non-financial risks and objectives cannot be ignored anymore
- Measurement is becoming increasingly possible
- Metrics will change
- “We need to be brave enough to engage with companies that are not perfect in terms of impact and push them to advance. That’s how we’ll make an impact”. — Liza Jonson of Swedbank Robur
Botha explains how every generation is different in terms of behavior and consumption that help shape our decisions. Presently, there is a strong value for ethical consumption and this creates pressure on firms to be more accountable.