What is Impact Investing?
Impact Investing has become the most widely used term to describe a “new form of investing”.
By Robert Rubinstein
What is Impact Investing? How is it different? Is there significant money going into it? Here are some of the common definitions that have been used.
- Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.
- Impact investing is an investing approach that intentionally seeks to create both financial return as well as positive social and/or environmental impacts that are actively measured.
- Impact investing includes investments that range from producing a return of principal capital to offering market-rate or even market-beating financial returns. NO NEGATIVE SCREENS or avoidance.
- Investments intended to create positive impact beyond financial return.
- These are investments in business which have been designed with the intent to have positive social and/or environmental consequences.
- Impact investing is the deployment of capital with the specific objective of achieving positive social and /or environmental impact alongside financial returns.
This seems rather straight forward and all have very similar definitions.. However, if one looks at what most are claiming to be impact investment, the focus is on social impact. This often has a high level of what I call “The Photo Op”, or a ribbon cutting ceremony. Meaning, the communications seems to be more important than the content. Many investors, particularly endowments, have been trying to show how they are committed to this “new approach” to resolving societal and environmental challenges. Asset owners and managers often ask me what is the difference between ESG (Environmental, Social and Governance) Investments and Impact Investing. My answer is ESG is liquid investments and Impact was illiquid. I am sure many “advisors” will disagree, but I am not trying to sell a definition and write hours. TBLI is creating an active ecosystem for the ESG and Impact Investing Community to attract significant assets.
Impact Investment figures range from 60 billion in assets under management with 10+ billion invested in 2014 (Eyes on the Horizon:The Impact Investor Survey May 2015, JP Morgan and GIIN).
There are many detailed graphs about impact and percentages of assets committed, if you need proof to believe that Impact is a good strategy. There are many of these reports and analysis with wide ranges of what it is and what researchers have found in asset allocations. Yet, we are constantly reminded that the investment opportunities are small, not scalable, not market rate, not quality, high risk and fundamentally they are “charity”.
There is a much more compelling story. Let’s focus on money flows. Look at the sectors below that make investments that match the definition of Impact, as stated above.
- Public Transport Infrastructure
- Fuel Free Energy Systems (Renewable Energy)
- Secondary Market of DFI’s (Development Finance Institutions)
- Green Real Estate including Retrofits
- Agroforestry including Redd++ (avoided deforestation)
- Social Impact
If one accepts these definitions then the amount of money going into Impact Investing, is actually in the Trillions and has been for quite a while. WRI (World Resources Institute) recently wrote a report called the Trillion Dollar Question.
“The transport sector is growing quickly, with the global vehicle fleet on course to double by 2050. According to the paper, global transport investment is between $1.2 and $2.4 trillion annually.”
If one accepts the common Impact definition, then the present Impact discussions and case studies are vastly missing the point. We are focused on the one small plant, that is pretty, in a massive forest of opportunity. When I hear the discussions around Impact by those trying to convince others, I am reminded of the scene from the movie Serpico, where Frank Serpico, a New York Police Detective is confronted with the scale of corruption in the narcotics division. One of the crooked cop describes the graft sums as “serious money”. Impact Investing is talking about “serious money” and always has been. One only needs to have an an open mind, look around and do the math. Do you want a financial return with a social and environmental added value? If so, why are you waiting for more research, when the opportunities are overwhelming?
There are people who have money and people who are rich.
About Robert Rubinestein and the TBLI Group
A native of Brooklyn, New York, Robert Rubinstein is a longtime resident of The Netherlands. In 1999, he founded a company to introduce the then-radical concept of sustainable investing. This concept became the foundation of TBLI Group – Triple Bottom Line Investing. The aim of this company is to create an inclusive values based economy.
The aim is to maximize investment flows into sustainability initiatives by showing the opportunities triple bottom line investing offers to investors. Rubinstein, the CEO of TBLI Group, has been instrumental in integrating ESG and TBLI into the culture and strategy of international corporate business and investment companies. He has taught courses in sustainable finance at the Rotterdam School of Management and currently delivers lectures at international Business Schools and universities.