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Impact Investing - Blending Philanthropy with Investment

Philanthropic funding and support together with government resources alone are not enough to address the social and environmental challenges that we are currently encountering in the world.

Market forces need to be an essential part of the solution

The emerging Impact Investing industry has the potential to unlock significant sums of private investment capital to complement philanthropy and public resources in addressing pressing global challenges, including basic needs/services in agriculture, water, housing, education, health, energy and financial services for the poor.*

At the Crossroads of Profit and Purpose
The emerging Impact Investing Industry aims to solve social or environmental challenges while generating financial profits, which can range from producing a return of principal capital to offering market-rate or even market-beating financial returns.*

Impact investments generally target the broader base of the economic pyramid in emerging countries which is defined by the World Resources Institute as those people earning less than USD 3000 per year.

Some Opportunities of Impact Investing
The JP Morgan Report on Impact investing estimates that the industry presents an investment opportunity of between USD 400bn and USD 1 trillion with a profit potential in the range of an amount between USD 183bn and USD 667bn.

Many impact investments are uncorrelated to the broader market and have been holding up well during this current market downturn.

As the global market migrates to the emerging world, it makes sense for investors to promote and engage in social projects that improve education, health services or infrastructures.

Some Challenges of Impact Investing
The risks for impact investment are similar to those experienced by venture capital undertakings in emerging countries. These risks include one’s reputation, legal risks and such like.

Investors need to make certain that the social impact is delivered. This can only be achieved by monitoring social performance in order to have answers for critics who may argue that impact investment exploits the poorer population for the sake of profit.

The deal flow is not keeping up with the rapid growth and increase in numbers of impact investors pursuing the same deals.

* From GIIN Global Impact Investing Network