If you’re like me, it seems like the phrase “impact investing” is everywhere these days – outside of COVID-19, it has become this year’s must-have investment strategy. Unleashing the power of money for good has suddenly become the rage.
New investment funds with an impact focus are launched weekly, not just in the US but in Australia, Singapore, China, and beyond. Celebrities such as Lady Gaga, Matt Damon, and Serena Williams are investing in companies that are “doing well by doing good”. Even the asset management and private equity big boys such as Black Rock, Goldman Sachs, and KKR have launched funds focusing on impact investments in the past year.
But it wasn’t always this way … In fact, just a few years ago, for civilians not working in the investment world or at specific NGOs, impact investing was a euphemism for charity or signified investments in companies that did good things but didn’t make any money. This was certainly my view. But rather suddenly, that’s not the case anymore.So what’s changed?
What is impacting investing?
Let’s begin by defining what impact investing is. The Global Impact Investing Network (GIIN) succinctly defines impact investing as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.
This is a small but important difference from impact investing’s predecessors – socially responsible investment (SRI) and environmental, social and governance (ESG) – which focus primarily on philanthropy and/or companies avoiding doing harm. Neither of these is bad by any means, but they are different from impact investing’s twin goals of:
- Deliberately deploying capital to address specific social or environmental objectives, AND
- Generating financial returns.
Lately, this specific focus has struck a chord amongst corporate, institutional, and individual investors. In their latest global survey, GIIN estimates that US$502 billion in funds were deployed in impact investments by the end of 2018, roughly double the amount from the previous year. As we enter the new decade, there’s no reason to think this trend is going to change – we can count on more capital being deployed with an impact focus.
So, again, why the sudden change? I believe this shift is due to the recent convergence of three key elements:
First is awareness. Over the past few years, (almost) all of us have grasped the size, scope and urgency of the problems we’re facing on the planet. It’s not just rising temperatures, but it’s rising water levels, radical shifts in weather patterns, lack of clean drinking water or air to breathe, diminution of species, dying bees, decimated koala populations and plenty more.