Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Geographical distribution of impact investments
Many impact investors choose to focus on either the emerging markets or the
developed markets. Part of the reason for this specialization is that there are
significant regional differences that require local expertise. Another driver of
investors’ geographical specialization is their value set: some prefer to help the
world’s poorest in emerging market economies; others prioritize their local
neighbours in need. Below, we give some examples of the variety of geographies in
which market participants operate.
Developing world: Asia, Africa, and Latin America
Within the developing world, impact investors will often focus particular efforts on
particular regions and sectors. Gatsby Charitable Trust and the Bill & Melinda Gates
Foundation use some of their investment capital to positively impact the lives of
smallholder farmers in sub-Saharan Africa. Gray Ghost Ventures, Acumen Fund, and
Omidyar Network all have programs that actively invest in alleviating poverty by
financing innovations directed at India’s low-income populations.
Developed markets: North America and Europe
Within the developed markets, we see similar regional specialization. For example,
W.K. Kellogg and Annie E. Casey Foundations support community development
finance institutions in specific regions of the US that are important to them: W.K.
Kellogg focuses on areas including Detroit, MI and Oakland, CA while the Annie E.
Casey Foundation invests in Baltimore, MD and San Antonio, TX, among other
communities. Among the European investors, Social Finance and Bridges Ventures
target UK markets, while Triodos Bank makes investments in mission-driven
businesses in several European countries.
Approaches to impact investing:
Financial vs. social investment thesis
Impact investors enter the market with a variety of priorities
Because impact investing is still a relatively nascent industry and most impact
investments are made in private markets, there is yet to be significant comprehensive
data analysis on investment performance. As a result, investors enter this market with
a wide variety of expectations. In this section, we highlight the range of expectations
with which investors approach impact investments, for financial returns, social
impact and risk.
Financial expectations
For some investors, financial returns should compete with traditional investment
Some impact investors, such as pension fund managers, are constrained by a
fiduciary duty to the clients whose money they manage. These investors will have to
prioritize the pursuit of a competitive financial return. TIAA-CREF, a retirement
fund manager, must seek to attain competitive returns and therefore make
investments – such as sustainable real estate and cash deposits in CDFIs – in which
they can both achieve social goals and earn risk-adjusted returns competitive with
traditional investments. Foundations making impact investments from their
endowments, such as the Kellogg Foundation and the Annie E. Casey Foundation,
also seek competitive risk-adjusted rates of returns.
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