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WHAT YOU NEED TO KNOW ABOUT IMPACT INVESTING

January 01, 2023





Investors around the world are making impact investments to unleash the power of
capital for good. Continue reading to learn about the core characteristics of
impact investing, who is making impact investments, the results these
investments can achieve and more.

 * What are impact investments?
 * What are the elements of impact investing?
 * Why impact investing?
 * Who is making impact investments?
 * How do impact investments perform financially?
 * What are some global examples of impact investing?
 * How big is the impact investing market?
 * What is the current state of the impact investing market?
 * Where can I go for more information?

Download

A version of this primer, answering many of the most frequently asked questions
about impact investing, can be downloaded here as well.


WHAT ARE IMPACT INVESTMENTS?

impact investments Noun: Impact investments are investments made with the
intention to generate positive, measurable social and/or environmental impact
alongside a financial return.

Impact investments can be made in both emerging and developed markets, and
target a range of returns from below market to market rate, depending on
investors' strategic goals.

The growing impact investment market provides capital to address the world’s
most pressing challenges in sectors such as sustainable agriculture, renewable
energy, conservation, microfinance, and affordable and accessible basic services
including housing, healthcare and education.


WHAT ARE THE ELEMENTS OF IMPACT INVESTING?

Note: On April 3, 2019, the GIIN published the core characteristics of impact
investing, which complement this definition and aim to provide further clarity
about how to approach impact investing.

The practice of impact investing is defined by the following elements:

 * INTENTIONALITY
   
   An investor’s intention to have a positive social and/or environmental impact
   through investments is essential to impact investing.

 * INVESTMENT WITH RETURN EXPECTATIONS
   
   Impact investments are expected to generate a financial return on capital or,
   at minimum, a return of capital.

 * RANGE OF RETURN EXPECTATIONS AND ASSET CLASSES
   
   Impact investments target financial returns that range from below market
   (sometimes called concessionary) to risk-adjusted market rate, and can be
   made across asset classes, including but not limited to cash equivalents,
   fixed income, venture capital and private equity.

 * IMPACT MEASUREMENT
   
   A hallmark of impact investing is the commitment of the investor to measure
   and report the social and/or environmental performance and progress of
   underlying investments, ensuring transparency and accountability while
   informing the practice of impact investing and building the field.

Investors’ approaches to impact measurement will vary based on their objectives
and capacities. Measurement choices usually reflect investor goals and investor
intention. In general, best practices for impact investing include:

 * Establishing and stating social and/or environmental objectives to relevant
   stakeholders
 * Setting performance metrics and targets related to these objectives using
   standardized metrics wherever possible
 * Monitoring and managing the performance of investees against these targets
 * Reporting on social and/or environmental performance to relevant stakeholders

Learn more about the Core Characteristics of Impact Investing


WHY IMPACT INVESTING?

Impact investing challenges the long-held views that social and/or environmental
issues should be addressed only by philanthropic donations, and that market
investments should focus exclusively on achieving financial returns.

The impact investing market offers diverse and viable opportunities for
investors to advance social and/or environmental solutions through investments
that also produce financial returns.

Many types of investors are entering the growing impact investing market. Here
are a few common investor motivations:

 * Banks, pension funds, financial advisors and wealth managers can provide
   client investment opportunities to both individuals and institutions with an
   interest in general or specific social and/or environmental causes.
 * Institutional and family foundations can leverage significantly greater
   assets to advance their core social and/or environmental goals, while
   maintaining or growing their overall endowment.
 * Government investors and development finance institutions can provide proof
   of financial viability for private-sector investors while targeting specific
   social and/or environmental goals.


WHO IS MAKING IMPACT INVESTMENTS?

Impact investing has attracted a wide variety of investors, both individual and
institutional.

 * Fund managers
 * Development finance institutions
 * Diversified financial institutions and banks
 * Private foundations
 * Pension funds and insurance companies
 * Family offices
 * Individual investors
 * Non-governmental organizations
 * Religious institutions
 * Corporates


GIIN INVESTORS’ COUNCIL

The GIIN Investors’ Council, a leadership group for active large-scale impact
investors, are among the leading institutional impact investors globally.

View Investors' Council members


HOW DO IMPACT INVESTMENTS PERFORM FINANCIALLY?

Impact investors have diverse financial return expectations. Some intentionally
invest for below-market-rate returns, in line with their strategic objectives.
Others pursue market-competitive and market-beating returns, sometimes required
by fiduciary responsibility. Most investors surveyed in the GIIN's 2023 Annual
Impact Investor Survey pursue competitive, market-rate returns.

Respondents also report that portfolio performance overwhelmingly meets or
exceeds investor expectations for both social and/or environmental impact and
financial return, in investments spanning emerging markets, developed markets
and the market as a whole.

Although very few investors report significant risk events in their impact
investing portfolios, business model execution and management is by far the most
often cited contributor to risk.


IMPACT INVESTING DECISION-MAKING: INSIGHTS ON FINANCIAL PERFORMANCE

 * WHAT YOU NEED TO KNOW ABOUT IMPACT INVESTING
   
   Impact Investing Decision-making: Insights on Financial Performance uncovers
   insights into financial performance and explores the increasing
   sophistication with which impact investors are approaching decision-making.
   Specifically, it finds that impact investors are applying a multi-dimensional
   approach to decision-making, considering impact objectives and impact risks
   alongside traditional factors such as financial return, financial risk,
   resource capacity, and liquidity constraints. Experienced impact investors
   exercise this dynamic approach to assess how they can most efficiently
   achieve their optimal impact and financial performance. This dynamic
   decision-making highlights growing maturation within the industry as impact
   investors are becoming more sophisticated in their approaches to performance
   management and capital allocation.
   
   Drawing on data from six of the industry’s existing financial performance
   studies, this report also offers a synthesis of impact investment financial
   performance and additionally analyzes the GIIN’s 2020 Annual Impact Investor
   Survey responses of 161 impact investors seeking risk-adjusted, market-rate
   returns. This report also highlights practical examples of leading impact
   investors, including: Anthos Fund & Asset Management, IDP Foundation, Inc.,
   Incofin Investment Management, UBS Global Wealth Management & UBS Optimus
   Foundation, and Vox Capital, offering an inside look at how various facets
   influence their decisions on capital allocation and performance management.
   
   The report confirms earlier findings from the GIIN’s research around
   financial performance of private debt, private equity, and real assets and
   expands on this research to focus on various facets of impact investment
   performance, including risk, financial return, and impact. Download the
   report below:

View Report



WHAT ARE SOME GLOBAL EXAMPLES OF IMPACT INVESTING?

The impact investing industry is full of success stories: stories about impact
investors using the power of their capital differently, stories about
entrepreneurs with exciting new ideas and stories about the end consumers who
benefit from fresh solutions. All three of these perspectives are woven together
in these impact investing success stories:

 * Acumen and Everytable: Bringing Good Health into Reach
 * LeapFrog and Bima: Reaching the Unreachable
 * Patamar Capital and Kinara Capital: Transforming Lives, Livelihoods, and
   Local Economies

Plus, read these stories to explore how impact investing is improving the lives
of women in Bolivia, the people and environment of Mongolia and bilingual
communities the United States.


CLICK THROUGH THE CASE STUDIES BELOW TO VIEW IMPACT INVESTING EXAMPLES:

 * THE ENTREPRENEURS IMPROVING MENSTRUAL HEALTH IN MALI
   
   Adam and Awa Drabo, founders of Sutura, have a mission to improve menstrual
   health by increasing access to sanitary pads in their country and across the
   continent.

 * HOUSING THAT'S GOOD FOR BUSINESS AND THE WORLD
   
   At the Green at 9 and 90, investing in residents’ quality of life and
   sustainability measures is beneficial across the board.

View more Case Studies


HOW BIG IS THE IMPACT INVESTING MARKET?

The GIIN estimates the size of the worldwide impact investing market at $1.164
trillion USD, marking the first time that the organization’s widely-cited
estimate has topped the $1 trillion USD mark. The figure, which is the central
finding of the GIIN’s 2022: Sizing the Impact Investing Market report, reflects
an increasingly comprehensive measurement of impact assets under management
globally.

The report, which was produced with the financial support of Nuveen, also
spotlights two areas of development in the market that are becoming increasingly
prevalent: green bonds and corporate impact investing.


WHAT IS THE CURRENT STATE OF THE IMPACT INVESTING MARKET?

While some investors have been making impact investments for decades, recently
there has emerged a new collaborative international effort to accelerate the
development of a high- functioning market that supports impact investing. While
this market is still relatively new, investors are optimistic overall about its
development and expect increased scale and efficiency in the future.

Impact investors generally recognize broad progress across key indicators of
market growth...

... but also acknowledge that some challenges remain.


WHERE CAN I GO FOR MORE INFORMATION?

The GIIN builds critical market infrastructure and supports activities,
education, and research that help accelerate the development of the impact
investing field. Be sure to check out the following resources:

 * GIIN MEMBERSHIP
   
   Tap into the leading network of like-minded investors and organizations
   interested in deepening their engagement with the impact investing market.

 * IRIS
   
   IRIS+ is the GIIN's catalog of generally-accepted performance metrics.

 * RESEARCH
   
   The Research Center houses the latest information about market activities and
   trends, performance, practice, and more.

 * FAITH-BASED INVESTORS HUB
   
   The Faith-Based Investing Hub provides a space for faith-based investors and
   their service providers supporting faith-based investors to engage in
   learning, leading, and collaboration.

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