Impact investments or transformational investments aim to solve social or environmental challenges while generating financial profit. Impact investing includes investments that range from producing a return of principal capital to offering market-rate or even market-beating financial returns. Although impact investing could be categorized as a type of “socially responsible investing,” it contrasts with negative screening, which focuses primarily on avoiding investments in “bad” or “harmful” companies – impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.
A rapidly growing supply of capital is seeking placement in impact investments across geographies, sectors, and asset classes, with a wide range of return expectations. The glue that binds those who operate in the impact investing industry is the shared conviction that creative investments can play a crucial part in addressing social and environmental challenges. This investment interest is sparking the emergence of a new industry that operates in the largely uncharted area between philanthropy and a singular focus on profit-maximization.
Despite the challenging economic environment, the impact investing industry continues to manifest itself in a wide range of innovations and entrepreneurial activities around the world:
- Private equity funds that aim to provide growth capital profitably to businesses that provide social services are proliferating and expanding access, for example, to education, better healthcare, and decent housing for poor people around the world.
- Clients of leading private banks and pension funds are calling on their investment managers to offer impact investment options.
- Prominent family offices are actively seeking investment partnerships that can help them source, vet, and execute impact investment deals in sectors ranging from sustainable agriculture to healthcare to urban infrastructure.
- Private foundations are seeking to partner with investment banks and development finance institutions to make impact investments in areas related to their social missions, utilizing program related investments (PRIs) or mission related investments (MRIs).
The impact investing industry has the potential to steer significant sums of money to market-based solutions to the world’s most pressing challenges, including sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology, and financial services for the poor. Creation Investments is a leader in the Impact Investing industry.