Impact investing can mean a diverse range of investments, ranging from housing development in the US, to renewable energy in BRIC countries, and agricultural cooperatives in Africa. Investment can be crowded fund or private equity. The table below shows the spectrum of different impact investment business models and traditional investments.
Social impact investing is not a new trend; it has been around for several decades through philanthropic investments, in areas like community and social development, infrastructure and gender equality. However, a fairly new type of bond to finance social wellness is the Social Impact Bond, which the Social Finance UK describes as a “public-private partnership which funds effective social services through a performance-based contract.” Unlike social impact bonds, however, social impact investing is a large field that include any social benefit from the underlying business model. The combination of social impact investing and bonds is the new form of business model that is emerging in many developing countries around the world. The HBR wrote several articles about how social entrepreneurs are typically held back by traditional financing processes and structures, but in new markets where risk and opportunity are intertwined, innovative business models are capable of driving new areas of returns for investors with an open mind. This is currently the case with green bonds and has been with impact bonds.
Impact Investing in Different Markets
In the world if impact investing, The impact sector is growing, in a study conducted by the Global Impact Investment network, respondents in impact investing reported they grew their impact assets from USD 25.4 billion to 35.5 billion from 2013 to 2015. The report, found here, shows many trends in the sector by respondent types and tracks the growth of the sector. Some American examples include Goldman Sachs’ investments in community and urban development across the US including New Orleans , Chicago, and NYC.
While globally, Africa is seeing many similar impact investments. One being The Just Shea Program , a program that helps women shea harvesters of Ghana with several areas from providing safety gear that can be repaid through harvest shea nuts, to providing equipment to protect form poisonous snakes, and finally and importantly for economic reasons, the creation of cooperative silos to increase the price per kilo paid to the harvesters.
In Africa, one of the value creation tools that African private equity can contribute to social impact businesses is the ability to bring their portfolio companies up to above-market standards of compliance and transparency, which in turn raises their value at exit. Investors can also help influence the political climate by investing in areas with strong legal standards and compliance thus creating reasons for government to create more favorable investment climates.
It seems that while impact investing may be difficult for traditional investment, there is a space in portfolios for this type of model, and as data emerges on the results, the potential for ROI is very viable as well as the potential to create positive socially responsible returns.