Impact Investing

At ID, we invest in for-profit social enterprises because we believe in their potential to create impact at scale. However, there are some misconceptions and barriers have prevented social ventures from receiving capital. In this week’s reading we hope to provide a better understanding of impact investing and the work that investors, NGOs, and policy makers are doing to remove the barriers.

Impact Investing Goes Mainstream in Ontario, Canada on Triple Pundit
Today the worlds face tremendous and difficult-to-solve social and environmental problems. Alongside public policy and charities, private capital is striving to solve these issues but are limited by the lack of capital. On September 19th, Social Venture Connexion, North America’s first online platform designed to connect social ventures and impact investors was launched. Since then, government, private and not-for profit partners have started to play a key role in closing the financing gap for social enterprises. Take Ontario’s government for example, which not only supports the launch of Social Venture Connexion but launched the Ontario Catapult Mirco-loan Fund and SiG@MaRS. With the recent growth in interest, social ventures are finding new and easier ways to raise small amounts of capital.

Can you make money and feel good about it? by Virginia Harrison on CNN Money
Growing awareness of inequality and diminishing natural resources are fueling a hunger to do good with finance. Ethical and socially responsible investments try to avoid harm by excluding tobacco or arms. On the other hand, impact investments focus on intentional, measurable social benefit. The interest in investing in impact ventures is going mainstream as renowned companies like JP Morgan plan to commit $9 billion this year. Beyond multi-billion dollar commitments, social impact bonds are becoming popular, especially in the UK. For example, social impact bonds can be used to fund school mentors and pay out if truancy rates fall. For average consumers, The Calvert Foundation offers impact investments starting at $20. and has been paying returns to investors since.

Cultivating Entrepreneurial Spirits in Youth to End Extreme Poverty by Dillon Roseen on US Aid
This year’s World Bank’s Global Youth Summit’s theme was “Youth Entrepreneurship: Cultivating an innovative spirit to alleviate global youth unemployment” and included a competition in addition to a series of discussion panels. There, young professionals had the chance to interact with USAID’s international team about the obstacles that young entrepreneurs face. Such obstacles are corruption, poor infrastructure, and lack of capital across developing countries. Additionally, the age gap between leaders and the young entrepreneurs is a plausible reason as of why youth concerns are disregarded, as noted by Ahman Alhendawi, a UN Envoy on Youth. With the proper investors, these young entrepreneurs can contribute to and benefit from more stable, democratic, and prosperous communities and nations.

When Can Impact Investing Create Real Impact? by Paul Brest and Kelly Born on SSIR
As the field of impact investing gains popularity and interest, questions arise regarding  assessments of impact and market-rate returns. In order to provide a better understanding, SSIR introduced three basic parameters of impact: 1) enterprise impact, 2) investment impact, and 3) non-monetary impact. Enterprise impact is the social value of the goods and services provided by the investee enterprise. Investment impact is an investor’s financial contribution to the social value created by an enterprise. Non-monetary impact reflects the various contributions  made to the enterprise’s social value. Regardless of the investor’s intention or return, they first must ask if the investment actually has social impact. Opposed to estimating a financial return on an investment, estimating social return is much harder due to the values placed on social and environmental outcomes and comes at a cost. Although SSIR does not provide an in-depth analysis, realizing the promise of impact investing depends on the three measures becoming central to the marketplace.