Impact investing: Can we align profit with purpose?

Investors are increasingly looking for ways to align their financial interests with positive social and environmental outcomes. This approach goes beyond traditional socially responsible investing, which typically involves avoiding investments in companies that engage in negative practices, to actively seeking out opportunities that have a positive impact. Impact investing is generally considered as a subset of ESG investing - which aims to generate positive social or environmental impacts in addition to financial returns – but ESG also includes a broader range of factors such as corporate governance and environmental sustainability. 

Impact investors use a range of strategies to evaluate and measure the impact of their investments, such as the United Nations Sustainable Development Goals (SDGs), which provide a framework for addressing global challenges. This has numerous benefits including the creation of a sense of purpose and meaning for investors, who can witness the tangible impact of their investments. Peace of mind, it seems, can be profitable. 

However, this form of investing also presents unique challenges. Quantifying the impact of investments, as social and environmental outcomes, can be difficult. To address this challenge, impact investors use a range of tools and frameworks such as impact reports, social return on investment (SROI) analysis, and the Impact Management Project's five dimensions for managing impact: What (defining impact), Who (stakeholder engagement), How much (measuring impact), Contribution (assessing the organisation's role in creating impact), and Risk (managing potential negative effects).  

Another potential barrier to entry is finding suitable investment opportunities that ethically align with investors' values and financial goals. To address this, impact investors often rely on specialised funds and platforms that focus on this specific investment form. These platforms provide a range of investment opportunities, such as green bonds, microfinance, and sustainable agriculture, that are designed to generate both financial and social value. 

Here are three impressive examples of impact investing in practice: 

Renewable Energy: Impact investors are driving the growth of renewable energy, which is crucial for addressing climate change. The Acumen Fund has invested in d.light, a company that provides solar lighting to off-grid communities in Africa and Asia. This investment has helped to provide affordable and reliable energy access to millions of people. 

At Polymath & Boffin, we are currently engaged with the Moldovan authorities to achieve a PPP (public-private partnership) and generate energy from waste products in Chisinau. We aim to reduce landfill, supply the energy grid with power, create jobs, produce new construction materials and reduce carbon emissions. You can read about this project here.

Microfinance: Impact investors are also investing in microfinance, which provides financial services to low-income individuals and communities. The Calvert Foundation has invested in MicroEnsure, a company that provides insurance to low-income families in developing countries. This investment has helped to protect millions of people from financial shocks and improve their economic resilience. 

Sustainable Agriculture: Impact investors are also investing in sustainable agriculture, which is essential for food security and reducing the environmental impact of agriculture. One example is the Global Environment Fund’s investment in Root Capital, a non-profit that provides loans and financial training to smallholder farmers in Latin America and Africa. This investment has helped to improve the livelihoods of thousands of farmers and promotes sustainable agricultural practices.

What is the outlook for impact investing?

The future looks promising as the demand for investments that generate positive social and environmental impact steadily increases. The transition from a niche approach to mainstream integration, with traditional financial institutions and asset managers incorporating impact considerations into their strategies is a strong indicator of acceptance. Governments are also providing regulatory support through frameworks, incentives, and reporting standards. As the momentum gathers, there is also an increasing emphasis on measuring and quantifying the impact of these investments to ensure transparency, accountability, and effectiveness in achieving desired outcomes. Collaboration among investors, governments, and organisations will play a crucial role driving positive change, and addressing the most pressing international issues.

As Amit Bouri, CEO of the Global Impact Investing Network says:

"Impact investing is not just about doing well while doing good. It is about recognising that we have a responsibility to create a better world, and that we can do so through our investments. It is about using the power of capital to drive positive change, and to build a future that is sustainable, equitable, and just."

If you are trying to attract investment for a project geared to achieving positive social and environmental change or if you happen to be an investor seeking opportunities as valuable as these, please feel free to get in touch with us.

Polymath & Boffin is a knowledge equity investor, a visionary, and a creator of bespoke commercial solutions. Our mission is to connect investor capital with innovative product and commercial opportunity, establishing an ecosystem of commerce for both investee and investor, one which thrives on an alignment of interest between all development partners. 

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