The world today has issues. A lot of them. Even more than yesterday, and there will be more tomorrow. Poverty, hunger, war, discrimination, drug trafficking, environmental destruction, the list goes on. As a society we’ve tried solving many of these for decades, some of them centuries. This doesn’t mean we are hopeless. It simply requires a shift in perspective on how to solve some of them.
In the private equity space, many investors have adopted responsible investment principles helps to mitigate risk on a number of environmental, social and governance (ESG) issues. Many believe that incorporating and improving ESG initiatives can increase the value of their portfolio over time.
However some investors believe that we can go one step further, while maintaining an attractive return for investors. Impact investing focuses on funding investable solutions to some of our biggest social and environmental challenges.
“Some impact investments may be able to deliver both positive social change and market-rate (or even above market-rate) returns. If a business has found a new way to help solve a big societal challenge, it has huge growth potential – which is not easy to find these days,” Clara Barby of Bridges Ventures tells Private Equity International.
But while private investment vehicles have the ability to make an impact, Ms. Barby contends that there is supply shortage. “While there may be no shortage of societal challengers to address, there definitely is still a shortage of suitable investable products to connect them with investors. And without more suitable product it will remain very difficult in practice to build up a meaningful impact allocation.”
As New York Times’ columnist David Brooks puts it, “Impact investing is not going to replace government or be a panacea, but it’s one of a number of new tools to address social problems. If you want to leave a mark on the world but are unsure of how to do it, I’d say take a look.”
Last summer Stanford GSB held program entitled, “Does Impact Investing Really Have an Impact” where experienced practitioners define impact investing and the ways investments can create both market return and social impact. Take a look at the program below.