Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Figure 7: Ways in which businesses can deliver impact
These means of impact might be part of the impact investment thesis motivating an investor
Means of impact
Means of impact
Process
Products for BoP+
• Job creation
• Energy efficiency
• Facilitating asset accumulation
• Utilizing BoP+ suppliers
• Agriculture
• Water
• Housing
• Education
• Health
• Energy
• Financial Services
Source: The Rockefeller Foundation, J.P. Morgan.
As with the impact objectives above, the means by which a company delivers social
impact can often fall into more than one category (and the categories listed are not
necessarily exhaustive). There may also be categories that emerge as the industry
develops. We present this framework as a classification to help investors structure
their investment theses, rather than as a rigid framework that exhausts all
possibilities 12 .
Some sectors are more developed
than others
The financial services and the clean
tech and energy sectors are two of
the more developed impact investing
sectors, with businesses across
regions focusing on microfinance and
renewable energy delivery. The
housing sector has seen significant
investment in developed markets,
and the fair trade categorization has
led to increased investment in
agricultural BoP supply chains.
Education and water are two sectors
where government provision can be
more extensive, leaving less of a
need for impact investments. We
provide a full discussion of sectors
on page 18.
More recent entrants often start investing in the more developed sectors
While there are investors that have been making impact investments for some time, a
new set of market participants has recently entered the sector, spurring growth
momentum for the sector as a whole. For those investors that are just beginning to
make impact investments, certain sectors of impact investing – such as microfinance
– have provided a launching pad to then explore other impact investment sectors. For
example, after successfully closing two microfinance funds totaling more than
$300m, SNS Asset Management, a Dutch asset manager, is now raising funds to
invest in agriculture in Africa. Similarly, Gray Ghost Ventures, an investment firm,
began by investing in microfinance in 2003. The firm now has funds dedicated to
education and technology that serve people with limited access to both.
Investment structures
Impact investments take many forms, including structures that are common in
traditional financial markets. Equity and debt, guarantees and deposits are all
examples of commonly used investment structures. Some more innovative
investment structures have also been devised, including bonds that employ equitylike
features that allow the investor to benefit from financial profits or even, in the
case of the UK’s Social Impact Bonds 13 , from successful social impact. The Social
Impact Bonds, structured by the UK-based investment organization Social Finance,
employ government commitments to use a portion of the savings that result from
improved social outcomes to reward non-government investors that fund the
intervention activities. The existence of such innovative structures allows investors
with different (social and/or financial) return and risk appetites to invest via the
vehicles that best align with their goals.
12 For further reading on designing a social investment thesis, see Solutions for Impact
Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, February
2010.
13 See Social Finance website for more details: www.socialfinance.org.uk
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