Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Identifying impact investments
Impact investments are investments intended to create positive impact beyond
financial return. Figure 5 illustrates the components of this definition in summary,
and we describe each aspect in more detail below.
Figure 5: 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.
Impact investments provide capital to…
In the current market, many impact investments will take the form of private equity
or debt investments, while other instruments can include guarantees or deposits.
Publicly listed impact investments also exist, though they are a much smaller
proportion of the transactions being made today. Most of the activity in public
equities that includes a social or environmental motivation takes the form of socially
responsible investment, in which investors seek to minimize negative impact rather
than proactively create positive impact. Indeed, only one out of 1,105 investments
reported in our survey was listed as a public transaction (see Section 3. Financial
return expectations for more details). We do expect greater numbers of publicly
listed impact investments to emerge as the market matures.
…a business designed with intent to generate positive social and/or
environmental impact…
The model of the business (which could be a fund management firm or a company)
into which the investment is made should be designed with the intent to make a
positive social or environmental impact, and this should be explicitly specified in
company documents. For many impact investments, the intended impact is likely to
be focused on underserved populations, though environmental initiatives may be
intended to impact a broader population. The impact is likely to be delivered through
the business operations and processes employed, the products or services produced
and/or the target population served. The business should also have a system in place
to measure its impact.
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