Basics of Impact Investing

Written by Eleanor Louise Manley, Content Editor at Fundie Ventures.

Welcome to Fundie Ventures’ “Basics of” blog series! In these articles, we will provide helpful insights into the world of impact investment and social entrepreneurship. We will also be covering basic concepts that are fundamental to navigating this space if you are a newcomer.

Let’s kick things off with a brief overview of impact investing.

Currently, impact investment is a $114 billion sector worldwide and JP Morgan estimates that it will exponentially grow to $1 trillion by 2020. In contrast to philanthropic activities that work through donations, impact investment represents a self-sustainable and innovative strategy that tackles pressing global issues while producing a profit. The Global Impact Investing Network (GIIN) defines impact investments as investments made into companies, organisations and funds with the intention to generate measurable social and environmental impact alongside a financial return.

With the rise of pressing global issues, impact investment is more important than ever. In the OECD countries alone, inequality is 7 times higher than it was twenty-five years ago. More specifically, the average income of the top 10% is 9 times higher than that of the 10% poorest people within the OECD countries.

This inequality is further accentuated by the dire situation of the environment, which most harshly affects those most vulnerable. For example, a study by Duke University found that up to 157 million premature deaths could be saved worldwide if governments prioritised reducing their carbon footprint. Therefore, impact investing not only represents a refreshing new take on business but is also vital for our future.

Impact investment is built upon both the desire to improve the world’s situation as well as the expectation of a positive return of capital. Historically, these two desires have been seen as competing — you could either make money or do good — but you could not do both. However, impact investment is still a fairly new concept, first appearing in 2008, and presents an exciting new opportunity for investors to harness the power of capitalism to work towards a positive change in the world.

Ready to dive in? If you are new to impact investing, here are some key things that you should bear in mind:

1. Identify a specific social or environmental issue that you are passionate about. This could vary from community development, to health and education or resource conservation. Impact investment without a tangible impact is just plain old investment, so this component is a key differentiating factor.
2. Expect a positive financial return alongside the positive social or environmental impact. It is crucial for the business, organisation or fund that you are investing in to be financially self-sustainable, therefore differentiating it from purely non-profit charitable organisations. You are not making a donation but an investment.
3. Measure the impact of your investment to ensure that it is creating positive social and environmental impact as well as still returning profit. This transparency is crucial in order to build the budding field of impact investing, and hold all parties accountable. To learn more about how to measure the impact of your investment, a handy guide we like to use is the Guidelines for Good Impact Practice, which you can find here.

This is a very brief introduction to impact investment, and there is obviously a lot more to learn. Follow along with our “Basics Of” series as we dive deeper into the world of impact investment. If there are specific topics you want us to cover, drop us a note at info@fundie.ventures.

If you are interested in learning more about how you can become an impact investor, visit us at Fundie!