Impact Investing Education: Investing for Impact and Profit

Impact investing education is a powerful tool for creating positive social and environmental change while generating financial returns. With a growing number of impact investors, it's essential to understand the fundamentals of this approach.

Impact investing education teaches you how to invest in companies, organizations, or funds that align with your values and goals. According to a study, 75% of high net worth individuals are interested in impact investing.

By learning about impact investing, you can make informed decisions about your investments and create a positive impact on the world. Impact investors can earn average returns of 8-10% per year, comparable to traditional investments.

As you explore impact investing education, you'll discover various investment options, including social impact bonds and environmental impact investments.

Impact investing is a concept that's been around for a while, and it's great to start with a clear definition. The Global Impact Investing Network (GIIN) defines impact investing as the practice of making investments with the intention of generating both financial returns and positive social or environmental impact.

The GIIN's definition is a great starting point for understanding impact investing, and it's a good idea to keep it in mind as you continue to learn more about this topic.

Impact investing is a way to make a positive difference in the world while also generating financial returns. The Global Impact Investing Network (GIIN) defines it as such.

The GIIN is a key organization in the impact investing space, providing a framework and resources for investors to make a positive impact. It's a great resource for anyone looking to learn more about impact investing.

At its core, impact investing is about using money to drive positive change in the world, whether that's through supporting social causes or environmental initiatives.

Investments can be made in various markets, including emerging and developed ones.

Impact investments specifically target a range of returns, from below market to market rate, depending on the investor's goals.

Investors can expect to provide capital to address pressing global challenges in sectors like sustainable agriculture and renewable energy.

Impact investments can also focus on conservation, microfinance, and affordable basic services such as housing, healthcare, and education.

These investments often aim to make a positive difference in the world, alongside generating returns for investors.

Impact investing offers a unique opportunity to make a positive difference in the world while also generating financial returns. This approach challenges the traditional view that social and environmental issues should only be addressed through philanthropic donations.

Many types of investors are entering the impact investing market, driven by diverse motivations. Banks, pension funds, financial advisors, and wealth managers can provide investment opportunities to individuals and institutions with a passion for social and environmental causes.

Institutional and family foundations can leverage their significant assets to advance their core goals, while maintaining or growing their overall endowment. This is a powerful way to create lasting change.

Government investors and development finance institutions can provide proof of financial viability for private-sector investors, targeting specific social and environmental goals. This can help unlock new funding opportunities for impact investing.

Here are some common investor motivations in the impact investing market:

The impact investing market is a rapidly growing field, with the GIIN estimating its size at $715 billion-US in 2020. This growth is driven by client demand and a desire to contribute to local and global communities.

The market has expanded to include a wide range of investors, with 65% of surveyed firms being asset managers, 14% foundations, and 5% development financial institutions. The GIIN definition of impact investing is consistent with most commonly used definitions, but there is no universal consensus on what qualifies as impact investing.

According to the PRI, the impact investing landscape is broad and fragmented, with organizations defining impact differently and no basic methodologies or standards to identify and assess impact investing funds. The PRI has developed the Impact Investing Market Map to provide a common definition of thematic investment and some basic criteria to identify thematic investments.

Here are the 10 themes identified by the PRI Market Map:

The impact investing market continues to grow, with the GIIN estimating its size at $1.164 trillion USD in 2022. This growth is driven by a desire to contribute to local and global communities and to align investments with personal values.

The impact investing market is a growing and diverse space, with various types of investors and assets under management. The GIIN estimates the size of the global impact investing market at $715 billion-US during 2020, based on data provided by 1,720 investors.

One of the notable characteristics of the impact investing market is its fragmentation, with different organizations defining impact investing in different ways. The PRI notes that impact investing has become increasingly integrated into mainstream investing, with an estimated $1.3-trillion in AUM in impact-related investments in 2016.

Asset managers make up the largest share of impact investors, with 65% of surveyed firms being asset managers. Foundations, development financial institutions, family offices, and other types of investors also play a significant role in the market.

The GIIN definition of impact investing is consistent with most commonly used definitions, but there is no universal consensus on what qualifies as impact investing. The PRI notes that impact investing has expanded and become increasingly complex over time.

Here is a breakdown of the types of investors in the impact investing market, as estimated by the GIIN in 2020:

The impact investing market is growing at a solid rate, driven by client demand for investments that contribute to local and global communities.

Millennials are placing greater emphasis on aligning their investments with personal values, which will only strengthen the growth of the market.

Despite improvements in areas such as market research and impact measurement, impact investing remains small compared to the total market of investable assets.

A shortage of quality deals, a lack of capital, inadequate regulatory clarity, and a lack of incentives for investment advisors to recommend impact investments are remaining obstacles in the market.

Here are some key statistics on the state of the impact investing market:

Measuring Impact is a crucial aspect of impact investing. About 70% of impact investors reference the SDGs in performance tracking, with an average of eight SDGs pursued.

The most commonly referenced SDGs are decent work and economic growth, no poverty, good health and well-being, and reduced inequalities. These SDGs are pursued by 71%, 62%, 59%, and 58% of impact investors, respectively.

Impact investors use various methods to measure and assess progress on achieving impact objectives, including identifying specific impact outcomes and determining thresholds for success. They also evaluate outcomes versus these thresholds and identify relevant risks to achieving their objectives.

In Module 3, we'll focus on the crucial aspect of impact measurement. A 2020 GIIN study shows that about two-thirds of impact investors pursue risk-adjusted market rate returns.

To measure return on impact investment, you need to understand how to evaluate your impact objectives. This involves identifying specific impact outcomes and determining thresholds in terms of scale and depth that indicate success.

Measuring impact requires tracking progress over time, and GIIN's survey indicated that over 70 per cent of surveyed investors reference the SDGs in performance tracking. The average number of SDGs pursued is eight, with decent work and economic growth being the most commonly referenced (71 per cent).

Breaking down the SDGs into key areas can help you focus your impact strategy. Some of the most commonly referenced SDGs include no poverty, good health and well-being, and reduced inequalities.

Here's a breakdown of the SDGs referenced by impact investors, according to GIIN's survey:

Understanding the importance of an impact strategy is crucial for measuring impact. It helps you identify specific impact outcomes and determine thresholds for success.

By tracking your progress and referencing the SDGs in performance tracking, you can evaluate the effectiveness of your impact strategy and make adjustments as needed.

Sustainable supply chains are a priority for many firms, and they're working with NGOs, governments, and community organizations to address economic, social, and environmental issues.

These CSR programs can be expensive and require long-term funding support, but they can be redesigned to bring about greater social impact and attract impact investors.

Impact investors can finance sustainable supply chains, reducing firms' CSR program costs without compromising their commitment to sustainability goals.

Current projects, such as Cocoa Bonds for sustainable cocoa farming and Metallic Teal Bonds for sustainable mining, are building impact investing opportunities.

By partnering with impact investors, firms can achieve their sustainability goals while also reducing costs and increasing social impact.