June 6, 2017; Fast Company
Writing for Fast Company, Ben Paynter offers an update on how impact investing relates to the United Nations’ 2015 Sustainable Development Goals (SDGs). Paynter references the Global Impact Investing Network’s 2017 Annual Impact Investor Survey in making his point that the SDGs are serving to advance and shape this relatively new form of philanthropy. At least, this was the case for the 209 impact investing groups surveyed, which together have at least $114 billion under management. These investors (fund managers, banks, foundations, pension funds, etc.) committed $22.1 billion to 8,000 impact investments in 2016.
That’s not trillions exactly, but as startups grow up into global powerhouses that generate their own revenue and bigger impact, it may not need to be. The results show that more than half of the impact investing industry is intent on tracking returns directly against SDG-related targets. (Per the fine print: 26 percent do that now, with 30 percent posed to do so.) “We feel that the SDGs will act as a global framework that more and more impact investors will align with going forward,” says GIIN’s Research Director Abhilash Mudaliar, who notes that the UN guidelines have acted as a “clarion call” for the burgeoning industry.
NPQ watches the progress of the impact investing practice, concerned primarily with the “why” rather the “how.” Echoing this concern last year, a leader in this field, Morgan Simon, asked, “Where’s the Community Accountability in Impact Investing?”
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I am concerned that in a drive for global scale in impact investment, we will lose the voices that should matter the most—the billions of people who will be affected by social enterprises funded by our investments. I am advocating for the establishment of effective mechanisms to empower “beneficiaries” to be actively involved in the planning, execution, governance, and ownership of enterprises, and in the flows of capital connected with them.
Paynter’s observation that impact investors are aligning their commitments toward meeting the SDGs complements Simon’s concern that impact investing engage beneficiary communities more as leaders and change agents than merely as producers or consumers. Investors are increasingly willing to consider the value of long-term impact over short-term financial gain. Even though the GIIN annual survey shows that “the overwhelming majority of respondents reported that their investments have either met or exceeded their expectations for both impact (98 percent) and financial performance (91 percent),” the SDGs are thankfully serving as worthy guideposts as more investors move into the impact investing space. Paynter adds, “The annual cash flow is expected to jump another 17 percent, to around $26 billion next year.”
Impact investments are typically made in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and basic social services such as housing, health care, and education. NPQ has noted how the Roman Catholic Church and at least the previous administration’s U.S. Department of State are endorsing and/or exploring impact investment opportunities. In April, NPQ reported on the Ford Foundation’s $1 billion commitment to mission-related investments. For all of these investors, their financial returns will range from below market (sometimes called concessionary) to risk-adjusted market rate. Investments will be made across asset classes, from cash equivalents to fixed income and venture capital. In each case, risks are being taken for the sake of positive social and environmental performance and progress. The practice of impact investing is building what could become a preeminent field of philanthropy.
Several days ago, Paynter wrote about the 14 billionaires who recently took the Giving Pledge. Today, David Brooks, inspired by the same subject, imagined for his New York Times readers how he would give away a billion dollars. Impact investing does not yet appear to be on any of their agendas. Nevertheless, with just eight billionaires possessing more wealth than the poorest half of the world’s population (3.6 billion people), it is not a small thing that impact investing is catching on. That the UN’s SDGs offer some degree of social conscience to the trajectory of these investments today is a small solace.—James Schaffer