The sustainable development goals (SDGs) of the 2030 Agenda for Sustainable Development officially came into force in January 2016. These comprise 17 core goals, ranging from ending hunger to stemming climate change, providing a critical roadmap to a sustainable future and more prosperous world.
It is clear that governments alone cannot fix these social, environmental, and political challenges. The private sector has a critical role to play too. Now retired Unilever CEO Paul Polman called the SDGs “the greatest economic opportunity of a lifetime”, and achieving them at home and around the world is going to require new ideas and large-scale investments with impact, far beyond the current capacity of governments.
It has become clear that private sector involvement and private finance, resources and expertise will be required to achieve these SDGs and as the debate about the role of business in society is getting louder, an “impact economy” is on the rise.
Many private sector players have been deepening their impact by supporting business models that actively deliver sustainable and scalable solutions to global issues. Dedicated to achieving both impact objectives and commercial returns, impact investors are uniquely positioned to invest in companies that further SDGs.
Innovative financing is one aspect of the impact investing ecosystem.
The Bertha Centre for Social Innovation and Entrepreneurship defines innovative financing as “an approach to funding enterprises and interventions that optimises positive social, environmental and financial impact”. In essence, it is an approach whereby the investors’ goal is to create a measurable social or environmental impact whilst generating an attractive financial return.
This simple idea — that you can do well by doing good — has created exciting new opportunities and given businesses competitive advantage. High net worth individuals, foundations, institutional investors such as pension funds, and even sovereign wealth funds, are increasingly seeking to align their investments to their values or those of their stakeholders and in some instances looking to solve longer-term sustainability related challenges. Likewise, a new generation of entrepreneurs has a growing need for investors who value them, not only for their investment potential, but also for their ability to generate positive social or environmental benefits.
Global Impact Investing Network’s (GIIN’s) Sizing the Impact Investing Market report, released earlier in April — estimated the current size of the global impact investing market at $502bn. However, the industry’s growth potential is hindered by an increasingly polarised debate about whether impact investing requires a trade-off between financial return and social or environmental impact and a consistent, common understanding of how you measure and claim impact.
One perspective claims that there is always a trade-off between financial return and impact, and that all true impact investing therefore involves subcommercial returns. The other argument is that there is no trade-off between return and impact, so all smart impact investments should achieve fully commercial, market-rate returns.
We need to move beyond the trade-off debate and widen our investment lens. There is room for all funding types and credit models along a continuum of investment returns and impact. Only when we embrace the full investment spectrum will we realise the potential of impact investing to address the world’s biggest challenges.