Impact investing is not a relatively new term in the financial world but is far from the traditional investment practices known to most people. However, many organizations are very much willing to engage in such type of business. The question that begs an answer then is: what is impact investing?
The New Hampshire Charitable Trust defines it as investing in projects and ideas that would create a return of 8 percent market rate. Aside from the huge return rate, the projects themselves must also contribute to the betterment of the people’s lives in the community. Simply put, impact investing blends social responsibility and philanthropy with business. In most cases, impact investments are focused on bettering the lives of people rather than seeking significant income gains.
Among the advocacies supported by impact investors are environmental protection and sustainability, renewable energy research, free education, and microfinancing. In 2009, the Monitor Group, an independent research firm, released a report saying that the impact investment market will grow from a $50 billion enterprise to as much as $500 billion within the next decade.
The first major impact investors in the United States were charitable foundations. Organizations like the Bill and Melinda Gates Foundation have made huge investments that have made significant changes to the community and people they choose to help. As the trend grows, many financial and commercial institutions are now joining the impact investing fray as part of their efforts to do their social and environmental responsibilities. Credit Suisse, J.P. Morgan Chase and UBS Swiss Bank are just some of the commercial groups that now offer impact investment products and services in their portfolios. Just recently, Bluewater International, a top growth management and investment corporation based in Washington DC, has joined the ranks of impact investors.
Even with its ever increasing popularity, there are still no parameters on how one measures the impact of investments. Financial returns are easily determined but the social and environmental impact is hard to quantify. This is the biggest challenge most social and environmental organizations and charitable institutions are tackling as impact investing becomes a bigger market.
There have been efforts made to measure the impact scale made by the investors. Global Impact Investment Network and Global Impact Investing Rating Standard are two of the newest methods designed to calculate impact. These approaches are still in their infancy and many adjustments are yet to be made before they can be considered the standard measuring instrument for impact investors. That said, these two approaches show real potential.