Until recently, Impact Investing, a term coined by The Rockefeller Foundation in 2007, involved a limited group of investors with a very high risk tolerance, plenty of flexibility on returns, and lots of patience. Today, assets in impact investing exceeds US $228bn according to estimates by the Global Impact Investing Network (GIIN). As outlined in a new report from The Economic Intelligence Unit (EIU) and sponsored by the Omidyar Network, the broader category of responsible investing accounts for a range of asset owners “along a continuum of investment risk and return”.
As more investors seek to make an impact, they won’t need to sacrifice market rate returns, as a growing body of research shows. In fact, more than two-thirds of impact investors, as surveyed by the GIIN, currently target risk-adjusted, market-rate returns. Many investors will approach impact investing with a much lower tolerance for risk and shorter timelines than the “patient capital” from the more adventurous impact investors before them. In turn, asset managers will be looking for more established businesses that have a track record of scaling to achieve this balance.
This is exciting news for scaleup entrepreneurs, founders of companies that are more than a few years old and have already experienced employment growth. Any businesses that have a particular focus on social or environmental impact should be particularly attractive to investors looking to “do well by doing good”. For scaleups delivering any type of product or service, the potential lies with investors interested in workforce development and local economic recovery. As Endeavor Insight studies show, scaleup companies are a boon to driving job creation, a hallmark of place-based investing.
The research also points to important challenges in impact investing, including the difficulty of measuring impact and the barriers in matching investors with investment opportunities that truly reflect their financial and societal impact goals. Fortunately, collaborations among existing impact investing networks, such as the Impact Management Project, make it possible for investors to better understand the social or environmental outcomes, and will support enterprises in articulating their impact. In this phase of rapid growth and newfound coordination, scaleups have a clear opportunity to articulate where they lie on the impact investing continuum and attract investors to enhance their contribution to social and environmental goals.
Contributed by Leah D. Barto.
To access the original study by the Economist Intelligence Unit, please click here.