INVESTING FOR IMPACT, CASE STUDIES ACROSS ASSET CLASSES | Big Society Capital

You are here

INVESTING FOR IMPACT, CASE STUDIES ACROSS ASSET CLASSES

Region | 

A report which aims to increase understanding within the investment community of the opportunities offered by impact investment and to promote impact investing.

Why Impact Investments?

Governments and charities do not have sufficient capital nor the complete skills set required to solve the world’s pressing challenges. At the same time, the recent economic crisis has shaken established orthodoxies about the risk and return profiles of traditional investments. The Impact Investment sector is emerging as a partial answer to the twin challenges that these two realities present: Impact Investment unlocks substantial capital to build a more sustainable and equitable global economy while allowing for diversification across geographies and asset classes.

A plethora of investments is emerging across multiple asset classes that provide investors with market-rate investments, or for more altruistic investors, substantial social impact, while still generating positive financial returns. The old binary system—the widely-held belief that for-profit investment could only maximise financial return and social purpose could only be pursued through charity—is breaking down.

Who is this report for?

This report is intended for the investment community and aims to help investors understand this emerging industry. Many investors have begun to explore Impact Investments by investing in microfinance in developing countries or community development projects in the US. However, there is still a perception that Impact Investment always entails a sub-market financial return, which this report demonstrates is far from the case. For example, Lyme Timber, a forestry fund based in Hanover, New Hampshire, has been able to utilise conservation contracts, partnerships with the Nature Conservatory, and deep industry experience to invest in sustainable forestry projects throughout the US. These projects help conserve local forests, while delivering market to above-market returns to their investors.

Meanwhile, the industry is developing globally and the financial products available for investors are diversifying. Investments range from tropical rainforest preservation in South America, to finance for charities in the UK, to low-income housing development in New York City, to infectious disease prevention in Africa.

A case study approach in an asset allocation framework

The report employs a case study approach, mapping examples of Impact Investments on a traditional asset allocation framework [pg. 15]. This structure illustrates readily the diversity of products that are being developed, where they reside within a traditional asset allocation framework and the types of opportunities that are available to date. From these cases the report draws a series of findings [pg. 10].

This report, in conjunction with a new monograph by Rockefeller Philanthropy Advisors, Solutions for Impact Investors: From Strategy to Implementation, demonstrates how impact investing can be integrated across asset classes and equips investors with the tools to frame their investment decisions from strategy to implementation and evaluation.

The growth potential of impact investment

Compared to more traditional investments in established asset classes, Impact Investment is only now emerging from infancy. Some initiatives have achieved substantial scale but many others remain small. Questions include how much the sector can scale and whether achieving greater scale will result in reduction in either social / environmental impact or financial returns. However, apart from growing in its own right, the sector has fostered a high level of innovation which can potentially serve as a catalyst to influence how mainstream investments are made.

The positive momentum of the Impact Investment sector continues, despite the recent turmoil in global capital markets. While the basic investment infrastructure needs to be developed, Impact Investment is becoming a stable and sustainable alternative for institutional investors and high net worth individuals. As the infrastructure builds further and more funds across asset classes achieve market-rate performance, the Impact Investment sector stands poised to become a powerful vehicle both to address significant social and environmental issues and to chart a new course for the financial services industry to reclaim its stature as an engine of social and economic upliftment.

Last updated | 
3 March 2010