Opportunities in Impact Investing

Impact investing continues to grow as foundations, investors, and entrepreneurs invest in solutions to some of the world’s greatest problems. Individuals, businesses, and institutions are also expressing interest in impact investments in various sectors. The list below describes some of the areas known for impact investment opportunities:

Climate Change

Climate change, like most environmental problems, is driven by externality:greenhouse gas emissions from energy use, agriculture, and deforestation. Of most concern is the increase in CO2 emissions from fossil fuel combustion. Fossil fuels, such as petroleum, natural gas, and coal, are sources of energy formed by natural processes over millions of years.

Economic growth in developing nations continues to rely on fossil fuels and accounts for most of the increased carbon dioxide emissions. According to the Energy Information Administration (EIA), fossil fuels supply roughly 80% of world energy consumption, and will continue to do so through 2040. In addition, world energy consumption is expected to increase 56% between 2010 and 2040.

Although fossil fuels continuously form in nature, they are considered non-renewable resources because they take millions of years to form and known reserves are being depleted faster than they’re being replenished. Renewable energy and nuclear power, both non-fossil sources, are the worlds fastest-growing energy sources, increasing 2.5% per year. Opportunities within renewable energy may include geothermal, solar, wind, wood, waste, and hydroelectric sources.

Education

Access to quality education is essential to personal growth and development. While governments maintain the responsibility to provide education opportunities, many low-income areas still lack the resources and capacity to provide standard basic education of quality. Although educational access has increased over the past decade, 57 million children do not currently have access to education.

According to Open Society Foundations, there are a variety of important roles for impact capital to serve. Primarily, where government is absent, impact investments can bridge the gap through funding direct services. Also, where government is present but has low capacity, investments can spur innovations that increase equitable access, enhance quality, and ensure retention.

Income Inequality

Income inequality in the United States, meaning the share of the nation’s income received by higher income households, has increased since the 1970s, when economic growth began to slow and the income gap began to widen.

According to the Gini Index, the U.S. ranks the 6thworst among 173 countries (4thpercentile) on income inequality. The U.S. consistently shows higher rates of income inequality than most developed nations. Half of the U.S. population lives in poverty or is low-income, according to U.S. Census data.

Income inequality has long been a subject for many scholars and institutions and may contribute to slower economic growth, higher household debt, and greater risk of financial crises. There is significant and ongoing debate regarding the causes and economic effects of income inequality. Just as well, there is opportunity to create impactful solutions.

Infrastructure

Infrastructure is of increasing interest because of public needs, investor preferences for long-term assets, and the compelling case of impact: to incorporate high social and environmental standards into project preparation and execution. Infrastructure investments are substantial, socially vital investments into assets such as power, sanitation, healthcare, and transport. Because of their size, stature and long duration, they include some form of public-private interaction.

Infrastructure is important because it sets the framework for future economic activity. Opportunities in infrastructure policy design may cover standards-setting, risk mitigation incentives, or long-term project stability. Overall, the opportunity to engage at widely different scales makes infrastructure an intriguing platform for future impact investment opportunities.