Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
• How much financial return are investors expecting and realizing?
We conducted a survey of leading impact investors, which resulted in 24
respondents providing data on expected returns for over 1,100 individual
investments. Reported return expectations vary dramatically: while some impact
investors expect to outperform traditional investments, others expect to trade-off
financial returns for social impact. Increasingly, entrants to the impact
investment market believe they need not sacrifice financial return in exchange for
social impact. Indeed, many have a regulated, fiduciary duty to generate riskadjusted
returns that compete with traditional investments.
• How large is the potential opportunity for investment in this market?
While we have not endeavored to measure the entire impact investment market,
we present a new framework for measuring the potential scale of invested capital
and profit. Applying our methodology to selected businesses within five sectors
— housing, rural water delivery, maternal health, primary education and financial
services — for the portion of the global population earning less than $3,000 a
year, we find that even this -segment of the market offers the potential over the
next 10 years for invested capital of $400bn–$1 trillion and profit of $183–
$667bn.
• What does risk management and social performance monitoring involve?
Our analysis of impact investment risk management includes components similar
to those for venture capital or high yield debt investments (with country and
currency risk components for emerging market transactions), with a unique set of
complexities arising from social performance measurement and reputational
exposure. Measuring and monitoring social performance are essential to track
progress toward the intended impact and to manage the reputational exposure, but
are challenging and potentially expensive in practice. Market initiatives are in
place to build third party systems to facilitate these efforts.
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