Blogs

Sutherland Global Services
Sutherland Global Services Sutherland Global Services Sutherland Global Services

Impact Investing
A philanthropic approach to financial gains

Each passing day presents new risks and opportunities for investors across the world. Today, the desire of giving back to the society and the earth alongside achieving financial gains has made many investors tread a new path of investment called Impact Investing. Impact investing is a practice of incorporating ESG (Environmental, Social and Governance) factors while making investment decisions.

The impact investment model contests the traditional view that social and environmental issues should be addressed only by philanthropic means like donations, while market investments should focus exclusively on achieving financial returns. Impact Investing integrates these two otherwise opposite objectives of altruism and profit-seeking by investing in the businesses that serve relatively ignored areas — like rural healthcare, education, sanitation, etc. —and have the potential to scale up. While still comparatively small, the impact investing industry is developing rapidly, and is presently one of the most innovative and exciting segments in the finance arena. With more and more investors embracing this model, impact investing is at the cusp of metamorphosing from an investment approach into an asset class, all by itself.

Incorporating Social Responsibility in the Investments

The investment industry has been historically associated with greed. This perception got more pronounced in the aftermath of the financial crisis of 2008, which brought the global economy to its knees. It pushed the banks and investment firms to find ways to incorporate value into their investments. The concept of impact investing, which explicitly aims to achieve a positive impact on society or the environment with financial return, offers a perfect avenue for such financial institutions.

Also, pressure from the investing community, including pension funds, SWFs asking for more responsible investment strategies has also played a significant role in the evolution of impact investing.

Strong growth potential

Impact investing is a relatively new model, and hence the size of its market cannot be gauged. However, the numbers released by The Global Impact Investing Network (GIIN) indicates that the market is growing at a significant rate. As per a survey (n=158 organizations) conducted by GIIN in the early 2016, total respondents committed more than $15 Bn to impact investments in 2015 and have plans to increase it by 16% in 2016. Collectively, as of the end of 2015, they managed $77.4 Bn in impact investing assets. Considering the traction Impact Investing is generating today, it has the potential to disrupt traditional philanthropic investment. In fact, many charitable foundations have started investing in impact investment funds, e.g. IntelleGrow raised $1.8 Mn from the Michael & Susan Dell Foundation in the early 2013.

Source: GIIN

Impact investing is going mainstream

In the recent years, major institutional investors, such as Zurich Insurance and AXA Group, have entered the impact investing market. The momentum continued to build in 2015, with impact investing gaining favor with more and more institutional investors. Here are some of the world’s leading investing firms that have shown growing interest in the impact investing industry:

  • Goldman Sachs Asset Management acquired Imprint Capital, an investment advisory firm, exclusively focused on impact investing
  • Bain Capital, LP formed a new unit focused on impact investing
  • BlackRock, Inc. launched BlackRock Impact, the firm’s global platform catering to investors with social or environmental objective
Impact Investing: AUM by Geography
Investor Investment Details Investee
Targeted Impact: Enhance post-secondary student retention and degree completion 
Business Description of Investee: Inigral creates virtual campus communities for post-secondary institutions on its "Schools on Facebook" application 
Investment Details: $2 Mn of early-stage, Series B Preferred Equity
Targeted Impact: Enhance livelihoods for rural women 
Business Description of Investee: The Savannah Fruits Company is a Ghanaian company that produces shea butter for export and improves livelihoods for rural women by providing a stable, well-paying market outlet for raw shea nuts 
Investment Details: Multiple Trade Finance Loans with the average value of $0.38 Mn
Targeted Impact: Improve health outcomes for the poor 
Business Description of Investee: Sproxil is a social enterprise that uses technology to help consumers verify the authenticity of their medication to avoid the use of counterfeit pharmaceuticals 
Investment Details: $1.79 Mn of early-stage Equity
Targeted Impact: Increase access to financial services for poor women 
Business Description of Investee: Pro Mujer Bolivia is an established microfinance institution that provides credit services, education, and healthcare to poor women in Bolivia 
Investment Details: $3Mn in Senior Loans

Upcoming investment

“Sir Ronald Cohen, Chair of the Global Social Impact Investment Steering Group, expects the impact investment industry to become a revolutionary $5 Trillion global market by 2050."

Emerging geographies, including the BRIC and African countries, offer several exciting opportunities for impact investors to make a difference. Within these regions, a cross-analysis of the mega trends of population growth, aging, and increased urbanization can reveal numerous areas where a sustainable business model catering to underserved niches can generate huge returns and positive impact at the same time

Additionally, the United Nations (UN) has identified a set of 17 Sustainable Development Goals (SDGs) to alleviate poverty, inequality and climate change by 2030. These SDGs in themselves present a gamut of opportunities for impact investing. Most impact investments identify one or more of these SDGs on their focus area.

Government policies in several countries are also acting as a catalyst for impact investing. E.g., in India, as per the Companies Act 2013, large listed companies should mandatorily allocate 2% of their profit for social activities.

Industry experts are of the view that if this CSR money can flow into professionally-managed charitable funds whose aim is to be an (social) Outcomes Fund, it will channelize a large chunk of the CSR kitty towards impact investing.

Impact Investment – The Indian Connection
Impact Investing: AUM by Sector

Outlook

The world is currently facing many environmental and social issues. These cannot be resolved by the government alone. Here, impact investing can come to the aid with its double bottom-line approach towards investing, by attracting a huge amount of untapped money.

Impact investing can enable individuals and institutions to align their investment goals along the global development and sustainability priorities of the international community including the UN’s Sustainable Development Goals (SDG). Through their scope and variety, SDGs present a slew of potential areas for impact investors.

While some remain unconvinced that investment can be both a morally legitimate and economically effective way to address environmental and social concerns, impact investing is moving swiftly from mere a concept to an emerging asset class.

 

Nikhil Loharuka, Senior Director – Financial Research
Financial Research
Leave a comment
Add comments
Explore by Category
Financial Research

Strategy & Business Research
Popular Blogs
Fintech! Cost reaper or White collar multiplier?

 
 
Testimonials View All

"Thank you very much for compiling this summary - it is a fantastic overview and saves us a lot of time. I particularly liked the quotes that you pulled from the transcripts; they were exactly what we were looking for."

Analyst, Canada-based Investment Bank

"Your model building and reconstruction is remarkable for its accuracy and speed, and you saved me several weeks of work, which I greatly appreciate."

Star Analyst, US-based Investment Bank

"Sutherland's analyst is diligent, accurate, technical and thoughtful with all of his work. He is a very thorough researcher and can find difficult statistics. He stays on top of long term projects and will continue to try to complete if unsuccessful. He continues to be a huge asset to our team."

Senior Banker, Mid-Market Investment Bank

"Sutherland's analyst is an invaluable resource to me and my team. We can count on him to generate thorough, accurate materials quickly. I am impressed with Sutherland's analysts' ability to perfectly capture what it is we were looking for, having only received limited instructions via email."

Senior Banker, Large Investment Bank

"I would like to mention that we had a really good week with 4 out of 8 meetings already reaching the "hot" category. Great progression with the type and kind of companies we are meeting with."
Keep up the hard work.

Business Development Manager, A Global Business and Financial Centre based out of the GCC

"This is a small note to say that it has been great working with you. Projects have been:
1- Delivered on time.
2- Delivered to top standards.
3- Not once there has been a delay (if there has been it has been discussed prior)
4- You have also gone beyond work hours in accommodating our special requests from time to time.
5- Particularly want to mention Fruit Trees study where your role was very key and well positioned in dealing with our "end client". This was truly outstanding.
Full marks.
We value this partnership and you have treated it beyond a client/supplier relationship.
Please keep up the good work.

Director, A leading Consulting Group in the Middle East and Africa

We have never had many policies in the database, and until recently our process was to reach out to advisors for that plan. Our Michigan team had precious few medical policies as well. I wanted to call out the Sutherland team for their amazing work in adding over a hundred new policies-not just PA forms, but fully-developed medical policies as well. Many of these were dated 2016 and earlier, so they had been missed for years.
Our Mumbai team is struggling with our conventions, working all day with Excel, and large workloads. Every plan they've pulled this month has been brand-new to them. These are plans we've researched multiple times this year alone, and they still manage to dig up all kinds of new information. This is not something we gather statistics on, but anecdotally, I've been reading a lot of new (previously-missed) policies in the last two weeks.
I'm very glad to have this kind of ingenuity on our side, enhancing our product a few plans at a time. If you've had a similar experience, I ask you to please give the Mumbai team that feedback as well.
Thanks,

Project Manager, A leading global health insights provider

Terms of Service   |    Site Map
© 2013 - 2018 Sutherland Insights. All Rights Reserved
Share Us @