Making a difference: The role of impact investing in giving back
By Roksana Ciurysek-Gedir (pictured), Chairwoman of the Impact Advisory Board, White Oak Global Advisors – The strong desire to help others and protect our planet is present in many of us and has been a defining feature of humanity for centuries. While the possibilities for giving back have never been broader, leading busy professional lives leaves most people with little free time to consider the options.
Among these, philanthropy has historically been the most popular route to making a positive impact. And this is without a doubt the most effective way to address certain causes, such as domestic violence, homelessness, inequality, or policy advocacy.
However, the exponential rise in impact investing – where investments are made with the intention to generate positive, measurable social and environmental impact alongside a financial return – means that we now have a highly effective alternative to giving back through philanthropy.
According to the 2020 survey by the Global Impact Investing Network (GIIN), the global impact investing market size has reached USD715 billion and is expanding rapidly. Their survey also shows that over 67 per cent of these funds achieve risk-adjusted market-rate returns, dispelling the myth that generating positive impact has to be at the expense of financial returns.
Despite its focus on financial returns, impact investing offers certain advantages over philanthropy. For instance, reinvesting or using capital repeatedly to create positive societal and environmental outcomes allows impact investors to potentially create more sustainable solutions. Bringing the size and firepower of the financial markets to tackle critical issues is an important driving force, mobilising capital that would have previously been deployed solely for financial gain. This highly scalable nature of impact investing is extremely beneficial given the size of the task ahead in meeting the UN’s Sustainable Development Goals.
The Hewlett Foundation identifies three areas where impact investing is more suitable than philanthropy: affordable housing, use of technology to increase access to educational resources, and the development of clean energy to combat climate change. However, not all causes lend themselves to revenue generation and, as such, it is vital for impact investing and philanthropy to be used in combination to effectively tackle key issues.
The pandemic has undoubtedly acted as a catalyst for change. As recovery gets underway, both private and professional investors are often increasingly mindful of deploying their capital in a way that creates a more sustainable future. This change in behaviour has been accompanied by changes at the state level as regulators look to set more consistent standards regarding what constitutes a sustainable investment.
With growing demand for sustainable investments and the increasing credibility and number of impact initiatives, we expect this market holds great potential. The IFC estimates that global investor appetite for impact investing is as high as USD26 trillion. It is feasible that harnessing the power of this capital to tackle social and environmental issues will be a vital force in reshaping the world.