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What is impact investment?
July 12, 2013

Though gaining in popularity and taking shape in India, it is still beyond the reach of the public


Author : Content Team



 What is impact investing?

In its latest survey, the CFA Institute Financial News Brief asked respondents if they were aware of impact investing. The majority (66%) were completely unaware of it, around 19% understood it vaguely and just 14% were in the know.

Impact investments are those that have a positive impact on society and the environment which can be measured. Impact investments are made into companies, organisations and funds with the intention to generate measurable social and environmental impact alongside a financial return.

Impact investing is not philanthropy; it is about making both a financial return and a positive impact. This is why it is not confined to religious foundations and charities but is also appropriate for institutional investors, like pension funds and insurance companies, seeking competitive returns.

Though not confined to any particular investment sector or asset class, some of the recurring sectors invested in are agriculture, microfinance, renewable energy, small and medium enterprises (SMEs), healthcare, green real estate, and community development. Some of the recurring asset classes are private equity, venture capital, private debt, and real estate.

A month ago, Bloomberg wrote about the popularity of impact investing in the developing world but lamented the lack of funds from big institutional sources. Forbes tackled the real issues weighing on investors’ minds.
Can impact investors actually make money? Dr Andrew Kuper, President and Founder, Leapfrog Investments, an impact investor in Asia and Africa explains why investors walk away smiling.
Does impact investing work? A case study demonstrates that it has the potential to lift people out of poverty in ways that philanthropy and humanitarian aid cannot.

According to the Times of India, a key factor why India is an attractive market for impact investors is the accessibility to consumers at the bottom of the pyramid, which has triggered the need for socially impactful market-driven solutions to development issues. At the same time, the number of high net worth individuals (HNIs) in India has increased, and they seek to invest their wealth with both a financial and social bottom line. With over a dozen domestic and international funds operating in this space, the segment has grown steadily over the past few years.  The article goes on to cite research by the Rockefeller Foundation: Impact investing generated around $100 million (roughly Rs 530 crore) of capital in India in 2012 and is growing at 30% per annum. 

Impact investing is taking shape as a distinct activity. While HNIs are already active in this space, in the future there could be options for retail investors to participate in such investments. Till it finally becomes an option for all of us, it is worth understanding what the concept is and keeping an eye on on whether existing investors are benefitting from substantial returns.

 

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