Social Impact Investing

The Impact Investment Sector
Investor motivation and returns
Although investors in Impact Investments share the vision of combining financial
returns with positive social/environmental impact, they can be categorised into two
broad groups. The Monitor Institute, in their Investing for Social and Environmental
Impact report, defines them as follows:
1. Financial First Investors, who seek to optimise financial returns with a
floor for social/environmental impact. This group tends to consist of commercial
investors who search for investment vehicles that offer market-rate returns
while yielding some social/environmental good.
2. Impact First Investors, who seek to optimise social or environmental
returns with a financial floor. This group uses social/environmental good as a
primary objective and may accept a range of returns, from return of principal to
market rate. This group is willing to accept a lower than market rate of return in
investments that may be perceived as higher risk in order to help reach social/
environmental goals that cannot be achieved in combination with market rates
of financial return.
Layered Structures
Sometimes Financial First and Impact First investors collaborate in what we term as
layered structures (also termed “Yin-Yang” investments 2 ). These layered structures
are created when the two types of investors work together, combining capital
from Impact First and Financial First motivations, blending different types of
capital with different requirements and motivations. In these deals, Impact
First investors accept a sub-market risk-adjusted rate of return enabling other
tranches of the investment to become attractive to Financial First investors. This
symbiotic relationship allows Financial First investors to achieve market rate returns
and Impact First investors to leverage their investment capital thus achieving significantly
more social impact than they would if investing on their own. It is important
to note that these structures are not limited to Financial First and Impact First investors,
but can include philanthropic organisations pairing grant money with Financial
or Impact First investors to generate high levels of impact.
This segmentation of Impact Investors, as adapted from the Monitor Institute Report,
is summarised in the figure on page 7.
2
Adapted from the Monitor Institute: Investing for Social and Environmental Impact
6
Investing for Impact: Case Studies Across Asset Classes