Impact investing describes investments made into organisations with the intention to generate positive social and environmental impact alongside a financial return.
Some investors approach impact investing from a philanthropic angle, with the aim to create a positive social and environmental effect, while other, more traditional investors, look to explore investments that benefit society.
A study done by MarketsandMarkets in 2017 showed that the value of global impact investment was estimated to be USD 135 billion in 2015, expected to grow to USD 307 billion by 2020. Out of this, Asia’s share in 2015 was USD 7.2 billion. Although Asia makes up only a small part of global impact investment, an upward trend is expected as the affluent millennial generation gains more interest in charitable causes.
IMPACT INVESTMENTS IN ASIA
Asian family offices are integrating traditional philanthropy with investments in for profit businesses that can directly benefit marginalised groups. These can include investments in basic services and infrastructure, such as microfinance, affordable housing, clean water, education, and healthcare.
Institutional investors are also moving into impact investing. One such example is the International Finance Corporation (IFC) who partners with organisations to look for investment opportunities that bring sustainable social and environmental impact. IFC’s environmental, social and corporate governance policies, guidelines and tools are widely adopted as market standards and are embedded in operational policies by other investors.
IFC studied the relationship between companies’ social and environmental practices and their financial performance and found that, in many cases, the two are directly correlated.
IMPACT INVESTING AND SUSTAINABILITY OF CAPITAL
With impact investing, even when the return does not meet market rates, capital can be reinvested. Therefore, many investors have decided that this is a more sustainable use of funds, and provides more significant benefit to society, than traditional philanthropic efforts.
We believe that the valuation of companies with a social mission will be higher than for those without one. The Millennial generation, one of the largest by population, is about to move into its prime spending years, becoming the most influential investor demographic. In the 2015 Nielsen Global Corporate Sustainability Report (surprisingly, the most recent global survey of corporate social responsibility and sustainability) Nielsen found that Millennials represent the majority of global respondents willing to pay more for products and services that benefit society and the environment. We expect Millennial investment habits to mirror their consumption, channeling funds to companies with a social mission. As a result to ensure financial sustainability, all companies will be forced to consider their social conscience.