An increasing number of investors are expressing a desire to “do good while doing well.” These investors are known as impact investors; they seek opportunities for financial investments that concurrently generate social or environmental benefits.
Historically, governments, NGO’s and philanthropists focused on addressing social and environmental challenges, however the funds available from these sources are woefully inadequate to meet the funding requirements of recent social and environmental challenges. It is this situation and the prospect of social enterprises meeting the financial return objectives of investors that has resulted in the emergence of Impact Investing.
Anecdotal evidence suggests that Impact Investment originated in the 1990’s when Jed Emerson, a Financial Advisor, advocated the “blended value approach,” which seeks to align the mission of a foundation with its investment as opposed to solely seeking to maximize financial returns. This had been the prior accepted strategy. This concept evolved over the years and in 2007, the term “Impact Investment” emerged.
According to the Global Impact Investment Network (GIIN), Impact investing is further defined by the following four core characteristics:
• Intentionality
An investor’s intention to have a positive social or environmental impact through investments is essential to impact investing;
• Investment with Return Expectations – Impact investments are expected to generate a financial return on capital, or, at minimum, a return of capital;
• Range of Return Expectations and Asset Classes – Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes including but not limited to cash equivalents, fixed income, venture capital and private equity; and
• Impact Measurement
A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability, while informing the practice of impact investing and building the field.
The question baffling most investors is whether it is even possible to make adequate returns while making a difference in the society and the answer is YES. For an Impact Investment to be successful, the right capital provider and capital seeker must be brought together and the deal must be structured to achieve the intended impact, as well as the desired financial returns. The growing impact investment market provides capital to address challenges in sectors such as agriculture, clean technology/ renewable energy, microfinance, and affordable and accessible basic services including housing, healthcare, and education.
The Rockefeller Foundation in collaboration with the Venture Capital Trust Fund, as well as the Ghana Institute of Management and Public Administration (GIMPA) has set out to promote impact investing in Ghana by establishing the GIMPA Centre for Impact Investing (GCII). GCII as non-profit organisation that seeks to provide advocacy, research and support services in the area of impact investing in Ghana. The centre has a clear vision of providing a “vibrant impact investing environment in Ghana.’’
The significance of impact investments, particularly, in emerging economies or developing countries cannot be over emphasised. Impact investing can help solve major social and environmental issues and still provide investors with substantial market returns.
Impact investing challenges investors, as well as business owners to be innovative in delivering effective and lasting solutions to social and environmental challenges in addition to earning market rate returns on their investments.
Impact investing has the potential to unlock significant sums of private investment capital to complement public resources in addressing social and environmental challenges. The impact investing industry is forecasted to grow from around US$50 billion to US$500 billion in assets over the next decade.
Impact investing contests the notion that investors should focus solely on achieving financial returns, while social and environmental issues are addressed through government interventions, philanthropic donations and grants.
Written by:
Laila Dwiejua
Analyst
C-NERGY Global Holdings
&
Isaac Ocquaye-Allotey
Senior Associate
C-NERGY Global Holdings
