Impact and Return… not Impact Versus Return
Why should responsible investing mean sacrificing return? At SheTransacts, as for many academics and for the UN PRI, responsible investing means enhancing returns. If words mean something, let’s introduce another nuance. We like to invest for impact, as does an ever-growing proportion of investors.
We welcome the investment world’s next step. In Impact Investing, the underlying business model is the impact — goods or services designed to meet a societal need, either social or environmental. These companies economic and financial performance are linked to their social or environmental missions. We believe that pursuing environmental and/or social returns simultaneously with financial returns yields a more efficient outcome than treating this goals separately.
COVID Sharpens this Focus
News headlines are demonstrating that social impact business models are in demand across the globe. After the governmental or charitable responses in the teeth of the crisis, infrastructure will need to be maintained, restored, or newly built.
Impact and financial returns are interlinked — We believe Impact Investments should be holistic businesses in which the impacts generated and the growth in financial returns are entwined. An Impact Investment is “made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.
There is plentiful scope for Impact Investments. The UN Trade and Development conference estimated a $2.5 trillion need for initiatives to avert threats of food insecurity, pandemics, energy supply, climate change, etc. If certain externalities such as emissions are priced, taxed, or fined — for example, wide adoption of carbon pricing — products and services which were Impact Investment growth potential once left to governments or controlled through regulation could become profitable impact business opportunities.
The GIIN estimated the Impact Investment sector at $502 billion in December 2018, and $715 billion in December, 2019. That is, a leap of 42% in just twelve months.
The financial press and others have been examining the extent to which the broadly-defined sustainable investing world actually puts much emphasis on the ‘S’, or ‘Social’, in Environment, Social, and Governance factors. The conversation has become louder since the outbreak of the Covid-19 pandemic.
It’s in our DnA with collective principles that extend to our companies ongoing due diligence of intentionality/impact measurement, return/interlinkage and alignment assessment. We’re literally born out of seeds of what we call H.E.R: humanity, empathy and responsibility
Impact Investing at SheTransacts takes the next step beyond ESG analysis, by investing in private equities whose business models have clear and measurable societal targets, either environmental or social. This is a more direct result, in that the impact is the business model, and the impact is a prerequisite in our decision to make an Impact Investment in the cohort companies.
Cultivating a Culture of a Sustainable Investing
The options available for Impact Investments, or profit with a purpose, depend on the goals, size, and experience of the investor, as is the case for all investing.
The most obvious Impact Investment options, such as direct investment in seed stage or early growth companies founded with the intent to produce a specific impact, and direct investment in green bonds, are most suitable for institutional investors or high net worth Individuals. At SheTransacts we are seeing the fastest growing sector of new angel investors diversifying their investment portfolios Post Covid cashing out greater % of their stocks and investing in our more sustainable startup ecosystem cohorts.
Funds of Impact companies, like most venture capital funds, usually have a minimum investment and a minimum multi-year holding period beyond the range of most individuals.
Green bonds can be a bit more accessible, although they are a tiny 1% of the debt market and lack a universal certification. Retail investors are likely to find the normal considerations as for any corporate bond — large face value of individual bonds, and low liquidity. The small but increasing number of green bond mutual funds may provide easier options for Individuals.
All is not lost for retail equity investors. Individuals can still invest for impact, especially environmental impact. Even direct investment is a possibility — some countries offer tax incentives and maintenance services for individuals to invest in low-income housing. There is project finance; there are green bond funds, and traditional bond funds which hold green bonds. An increasing number of mutual funds invest broadly in climate change topics, including low-carbon or green energy funds, but also less obvious areas such as non-traditional agriculture. And while we wait for these new little Impact companies to grow up and become big public Impact companies, there are many sustainable investment options.
However you currently prefer to invest, there’s always room to re-allocate your investments to align with fostering a more sustainable and prosperous future for us all.
There’s a great opportunity to engage and create immediate impact and returns together at SheTransacts as an Investor.
Learn more about sustainable investing in our Circles at SheTransacts, and join this fastest growing investment category.
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GIIN, Global Impact Investing Network. https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing, accessed 27 November, 2019
United Nations Conference on Trade and Development, 24 June 2014, https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=194 accessed 9 June, 2020.
Global Sustainable Investment Alliance, GSIA. “Global Sustainable Investment Review 2018”. http://www.gsi-alliance.org/# accessed 9 July, 2020.
Abdullahi, Mohadeseh. “Is there a case for institutional investors to pursue Impact Investing in Europe?” London: Imperial College Faculty of Arts and Sciences, 17 September, 2017.
Mouhammad Yunus, pioneer of the concepts of microcredit and microfinance, was awarded The Nobel Peace Prize in 2006 jointly with the Grameen Bank, which he founded, “for their efforts through microcredit to create economic and social development from below”.
The GIIN, “Annual Impact Investor Survey 2020”, tenth edition. New York: 11 June, 2020. https://thegiin.org/research/publication/impinv-survey-2020 page 33; and The GIIN, “Annual Impact Investor Survey 2020”, ninth edition. New York: 19 June, 2019. https://thegiin.org/research/publication/impinv-survey-2019
UN PRI. “PRI Brochure.” https://www.unpri.org/download?ac=6303 accessed 8 June 2020.
Allianz. Quoted in Business Wire, 12 August 2019. https://www.businesswire.com/news/home/20190812005374/en/Socially-Responsible-Investing-ESG-It%E2%80%99s-Millennial-Tren , accessed 25 June, 2020.
The GIIN, Global Impact Investing Network. “Sizing the Impact Investing Market” New York: 1 April 2019. https://thegiin.org/research/publication/impinv-market-size . Also, The GIIN, “Annual Impact Investor Survey 2020”, [below], page 40.
United Nations Conference on Trade and Development, 24 June, 2014, https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=194 , accessed 9 June, 2020.
