Knowledge Centre

FAQ

What is impact investing?

Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors' strategic goals. The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.

Source: www.thegiin.org

What are the core characteristics of impact investing?

The practice of impact investing is further defined by the following four core characteristics:

INTENTIONALITY An investor’s intention to have a positive social or environmental impact through investments is essential to impact investing.

INVESTMENT WITH RETURN EXPECTATIONS Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.

RANGE OF RETURN EXPECTATIONS AND ASSET CLASSES Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.

IMPACT MEASUREMENT A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.

Source:www.thegiin.org

Why impact investing?

Impact investing challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns. The impact investing market offers diverse and viable opportunities for investors to advance social and environmental solutions through investments that also produce financial returns.

Many types of investors are entering the growing impact investing market. Here are a few common investor motivations:

  • Banks, pension funds, financial advisors, and wealth managers can PROVIDE CLIENT INVESTMENT OPPORTUNITIES to both individuals and institutions with an interest in general or specific social and/or environmental causes.
  • Institutional and family foundations can LEVERAGE SIGNIFICANTLY GREATER ASSETS to advance their core social and/or environmental goals, while maintaining or growing their overall endowment.
  • Government investors and development finance institutions can PROVIDE PROOF OF FINANCIAL VIABILITY for private-sector investors while targeting specific social and environmental goals.


  • Source: www.thegiin.org

    How big is the impact investing market?

    Impact investing is a relatively new term, used to describe investments made across many asset classes, sectors, and regions. As a result, the market size has not yet been fully quantified. However, the aggregate assets noted below indicate that the market is substantial, with significant potential for growth. In May 2017, the GIIN published its seventh edition of its annual impact investor survey and reported that collectively, the 208 respondents managed $114bn in impact assets with 205 of these investors committing $22bn more in 2017 than in 2016 to impact assets.

    Source: www.thegiin.org

    How do impact investments perform financially?

    Impact investors have diverse financial return expectations. Some intentionally invest for below-market-rate returns, in line with their strategic objectives. Others pursue market-competitive and market-beating returns, sometimes required by fiduciary responsibility. Most investors surveyed in the GIIN's 2017 Annual Impact Investor Survey pursue competitive, market-rate returns. Respondents also report that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets, and the market as a whole.

    Source: www.thegiin.org

    What are Impact Reporting Investment Standards (IRIS)?

    IRIS is the catalog of generally accepted performance metrics that leading impact investors use to measure social, environmental, and financial success, evaluate deals, and grow the sector’s credibility.

    Source: iris.thegiin.org

    What is blended finance?

    Blended finance uses catalytic capital from public or philanthropic sources to increase private sector investment in emerging markets for global development impact. With support from public investors (such as first-loss capital or guarantees), private investors benefit from lower risk and/or enhanced returns on their investments in emerging and frontier markets. Meanwhile, public investors can magnify the impact of their funding – initial estimates suggest that public capital used in these transactions can attract up to 10x in private investment.

    There is an estimated $2.5 trillion gap in funding per year for the Sustainable Development Goals (SDGs). As a result, governments, donor agencies, and philanthropists are looking for more catalytic ways to deploy capital to close this gap. At the same time, private investors are increasingly seeking new investment opportunities in high-growth emerging and frontier markets. At the intersection of these two trends is the blended finance opportunity. Blended finance transactions in Emerging and Frontier Markets have the potential to unlock billions of private sector dollars for global development.

    Source: www.convergence.finance

    Industry Reports

    Impact investment performance

    A comprehensive review of available research to date on the financial returns of impact investments are available in the GIIN’s report, GIIN Perspectives: Evidence on the Financial Performance of Impact Investments. The report evaluates over a dozen studies—produced by a wide range of organizations—on the financial performance of investments in three common asset classes in impact investing: private equity, private debt, and real assets, as well as individual investor portfolios allocated across asset classes.

    Role of blended finance in impact investments.

    The State of Blended Finance is a working paper that aims to expand the evidence-base around the potential for blended finance to narrow the SDG funding gap.  The paper was commissioned by the Blended Finance Breakthrough Taskforce (BFBT), an initiative established by the Business and Sustainable Development Commission (BSDC). The research in “The State of Blended Finance” was led by Convergence, an institution that connects, educates, and supports investors to execute blended finance transactions that increase private sector investment in emerging markets. The purpose of this working paper is to help inform BFBT recommendations to remove systemic barriers preventing the flow of mainstream capital into blended finance transactions at scale.