Impact Investing
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A look into Impact Investing: The challenges facing the industry, the opportunities for advancement, and current best practices in the industry. Is Impact Investing the answer to a more sustainable economy?
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Impact Investing
- 1. Impact Investing Team 8 Cristina Soeiro, Nicholas Sanderson, Stephanie Ciancio & Vanessa Roscoe Presidio Graduate School, October 21, 2011 Team 8: Cristina Soeiro, Nicholas Sanderson, Stephanie Ciancio & Vanessa Roscoe
- 2. Concept & Foundations • Demands both a financial return and a measurable Environmental, Social and Governance (ESG) impact • Emerging asset class • Difference between SRI and Impact Investing Presidio Graduate School, October 21, 2011
- 3. Applications to Sustainability & Environment 23% 17% 16% 14% 11% 7% 6% 4% 2% Distribution of Impact Investments by Sector Renewable Energy Rural Developmemt Health Trade Water and Sanitation Technology Finances and Business services Presidio Graduate School, October 21, 2011
- 4. Current Examples • Dow Jones Sustainability Index • Calvert Foundation Community Investment • RSF Utility Function Presidio Graduate School, October 21, 2011
- 5. Breakthroughs & Challenges • Global Acceptance • Success where government and philanthropy cannot do enough • Moving from niche to mainstream • Deal sourcing • Lack of a common language • Impact measurement: the development and adoption of standardized metrics, benchmarks, and/or ratings (Impact Reporting Investment Standards and Global Impact Investment Rating System • Organized network to advance shared interests Presidio Graduate School, October 21, 2011
- 6. Conclusions & Top 3 References The sector has the potential to drive significant capital to market-based solutions to the world's most pressing challenges References: 1. 2. 3. Presidio Graduate School, October 21, 2011
Editor's Notes
- Creating positive impact beyond financial return Image source: http://www.organics-recycling.org.uk/uploads/article2028/12043_Ecoera_biochar_ladybug.jpg
- *****We need a strong introduction to the topic!! Tie in with our population brief - With four billion people living on $3000 a year, Base of the Pyramid. In terms of impact investing, it is most useful to refer to BoP+ where some people are making a higher income than the $3000 a year but can still benefit from impact investment in that they expand their opportunities and services “An economy needs four types of capital to function properly: human capital - in the form of labor and intelligence, culture, and organization financial capital - consisting of cash, investments, and monetary instruments manufactured capital - including infrastructure, machines, tools, and factories natural capital - made up of resources, living systems, and ecosystem services” (Hawken, Lovins, & Lovins, 1999 p. 4) Two types of investors: With increasing numbers of investors rejecting the notion that they face a binary choice between investing for maximum risk-adjusted returns or donating for social purpose, the impact investment market is now at a significant turning point as it enters the mainstream. 0% financial return and 100% ESG (legal requirements for foundations and similar entities) or 100% financial return and 0% ESG impact (typical requirements for corporate entities). Impact investing is the hybrid of the two. Can take traditional forms such as debt or equity or more innovative structures – for instance there is a Bond in the UK – where returns are linked to metrics of social performance such as the reduction in prisoner reoffending rates Emerging Asset class – no longer the underlying assets but how investors organize themselves around the assets. By defining impact investing in this way, it is congruent with investment history and practices and is more likely to lead to the rapid growth of these assets
- fostering the creation of sustainable products, production systems and supply chains Portfolio dedication to…affordable housing, recidivism, sustainable forestry, energy efficiency, waste management/recycling, emissions markets, nanotech, biodegradable materials. Basic needs and services: direct investment into agriculture, water, housing, education, health, energy and financial services Integration of sustainable business practices and capital markets
- If you want to get into it! Whether or not there is a return tradeoff in impact investing depends on the instrument type, investor perceptions and chosen benchmarks! Especially when these benchmarks involve expected versus actual realized returns Calvert - (minimum $1000) RSF -(minimum $20)
- *******Make slide into two sections somehow We expect more publicy traded investment opportunities to emerge as the market matures. Global acceptance: demand for impact investment products has created dedicated SRI and impact investment divisions in every major bank since the mid-2000s. Success where government and philanthropy cannot do enough: in the next decade, impact investing could grow to twice the annual funding of all US foundations. Moving from niche to mainstream: impact investing is no longer only accessible to certified investors, but increasingly open to micro-individual investors Lack of a common language: to describe their investment activities and performance targets Organized networks to advance shared interests: using for-profit investments to fund social solutions Standard reporting and social measurement frameworks IRIS – Impact Reporting and Investment Standards (standardize reporting and create industry benchmarks) and GIIRS – Global Impact Investment Rating System (takes IRIS one step further in that it assigns relevant value to investment’s social performance
- Current impact investments amount to $50 billion and are projected to grow to $500 billion by 2014, roughly 1% of all managed assets. Marketplace where investments are transparent, performance data is accessible, credible and comparable, coinvestors are easily identified. New infrastructure would create new investors! Potential to go mainstream