Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Executive Summary
Investments intended to create positive impact beyond financial return
Impact investments are investments intended to create positive impact beyond
financial return. This definition captures the key themes characterizing impact
investments as illustrated in Figure 1: impact investments provide capital, expecting
financial returns, to businesses (fund managers or companies) designed with the
intent to generate positive social and/or environmental impact.
Figure 1: Defining impact investing
Investments intended to create positive impact beyond financial return
Provide capital
• Transactions currently tend to be private debt or
equity investments
• We expect more publicly traded investment
opportunities will emerge as the market matures
Business designed with intent…
• The business (fund manager or company) into which
the investment is made should be designed with intent
to make a positive impact
• This differentiates impact investments from
investments that have unintentional positive social or
environmental consequences
Expect financial returns
• The investment should be expected to return at
least nominal principal
• Donations are excluded
• Market-rate or market-beating returns are
within scope
… to generate positive social and/or
environmental impact
• Positive social and/or environmental impact
should be part of the stated business strategy and
should be measured as part of the success of the
investment
Source: The Rockefeller Foundation, J.P. Morgan.
Investors and investments range broadly, across sectors and objectives
A variety of investor types participate, including development finance institutions,
foundations, private wealth managers, commercial banks, pension fund managers,
boutique investment funds, companies and community development finance
institutions. These investors operate across multiple business sectors, including
agriculture, water, housing, education, health, energy and financial services (Figure
2). Their impact objectives can range from mitigating climate change to increasing
incomes and assets for poor and vulnerable people. Investments take the form of
traditional financial structures, such as debt or equity, or more innovative structures,
such as the Social Impact Bond issued in the UK, where returns are linked to metrics
of social performance such as reduction in prisoner reoffending rates.
Figure 2: Business sectors for impact investments
Business sectors
Business sectors
Basic needs
Basic services
• Agriculture
• Water
• Housing
• Education
• Health
• Energy
• Financial services
Source: IRIS, J.P. Morgan.
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