Impact Investing: From Trend to Imperative

“Achieving impact–that’s the future. There’s a revolution happening and it’s something that is broad-based, global, and infused with a partnership spirit.” – Sir Ronald Cohen

We started this transformation by asking ourselves what kind of life we wanted to create together, and what we could contribute through our efforts. This led to questioning the issues of our times and ultimately to the decision to make positive social and environmental change our mission. As we explored the issues, we delved into understanding the ecosystem of government, NGOs, business, and capital. We took our combined skillsets and professional experience into consideration, and with all of these elements on the table…the vehicle of change that resonated most was the fast-growing field of Impact Investing.

The simple definition of Impact Investing is an investment that has the intention of creating a positive social or environmental impact while yielding financial returns. This investment strategy has emerged over the past 10 years and is gaining steam, with total assets under management doubling year over year to $228b from 2017 to 2018. The areas of impact are often defined by the UNs Sustainable Development Goals (see figure below), a comprehensive list of objectives to create a better world. A few examples of for-profit organizations for change include: Ampd Energy, a Hong Kong based clean energy disrupter, Hello Tractor, which is using technology and the shared economy concept to improve access to tractors in rural Africa, or WorldRemit, a FinTech that facilitates digital money transfer for international migrants. Sir Ronald Cohen, quoted above, raised billions on Wall Street and is one of the founders of this movement. His vision is that impact becomes the driving concept of business decision making in the future with all companies playing a role, beginning now.

Check out this Forbes video on Sir Ronald Cohen and hear his vision for yourself

This strategy may sound like a recent development, but it’s just the latest iteration of the evolving investment world. In the early 2000s a set of criteria was introduced called ESG (Environmental, Social, and corporate Governance), which represents three areas of measurement for determining the sustainable and ethical implications of an investment. To build on this, the UN developed the Principals of Responsible Investment (PRIs) in 2006, six principles based on the ESGs that promote sustainable investment decision making. Today the PRI is a global initiative and has over 1,600 members, including the majority of large corporations and institutional investors. As evidence continues to prove, ESG issues have financial implications that make it prudent for all investors to implement the PRI initiative.

Major studies are building  a body of evidence that ESG use not only mitigates risk but improves financial success, including reports from Morningstar, Cambridge Associates and many others (here’s an aggregated list). These criteria are outside of the traditional aspects of financial analysis, but the reality of our times dictates that they must be incorporated to adequately assess an investment opportunity.

To learn more, I sat down with Alex Bernhardt, Mercer’s Head of Responsible Investment. Alex is an investment thought leader working as a voice for change in the large institutional space. From his perspective, ESGs are now on the radar of most major institutional investors and corporations, and that some funds are beginning to look at impact investment offerings. He sees the next big step for Responsible Investment and Impact Investing alike as the improved standardization of measurement. “Using a shared standard for measurement and reporting will allow for better engagement with ESG and ensure that sustainability objectives are met.” This would follow in the footsteps of other standardization practices that have been adopted by capital markets such as the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Recent news has featured some exciting announcements about progress on measurement standardization from the World Benchmarking Alliance and Impact Management Project.

Where the ESGs and PRI have laid the groundwork, Impact Investing adds the element of intention. Organizations funded through impact investment have intended impact outcomes that are measured and considered part of the return promise of the security. One example, Brighter Investment, is helping to transform the economic reality in Ghana through education and job access. This effort, led by Thijs Mathot and Tyson Titensor out of Vancouver, Canada, has shown strong early results. Ghana is predicted to be the fastest growing economy in the world this year, but still has a long way to go in bringing its people the education and financial stability needed to sustain progress. This educational lending social enterprise has been in operation since a trial investment period in 2015. Talking with Tyson just after he returned from Ghana earlier this year, he had many colorful stories painting a picture of both opportunities and challenges. The 2015 trial of funded degree seekers have shown great progress and the organization will also be offering job placement to new graduates to help ensure repayment and enduring success for the community as a whole. Brighter Investment is currently doing a capital raise in partnership with the SVX impact investing platform, check them out.

“impact is the future”

Whether it’s Sir Ronald Cohen reshaping his legacy, Brighter Investment changing lives in Ghana, or Alex leading his team to implement ESG practices for major clients: social and environmental impact efforts are gaining traction. As we face increasingly daunting challenges to our environment and human wellbeing, this trend is poised to become an imperative for all.

We believe impact is the future and we’re beginning one step at a time to advocate for awareness and change, and to build an impact investing organization that can expand the positive impact of existing companies and bring impact focused companies the services and capital needed to maximize their potential.

A note from the field:

We are currently in Singapore and will be making several stops in South East Asia next. Let us know if you have ideas, suggestions, or contacts we should call on while we explore!