Definition Of Impact Investing
Impact investing reflects the act of pursuing both a financial and beneficial return, by investing in social and environmental projects. The latter can be brought about by private corporations, funds, universities and so on. The common denominator here is the intention of generating some good. That is, reducing poverty, guaranteeing universal access to water and primary goods, giving children in underdeveloped countries basic education etc.
Behind the concept: Impact Investing
Such phenomenon contemplates different scenarios. The most common one is when a venture capital, private equity, foundation, NGO, religious institution or individual investor decides to fund a project/firm/organization whose core business aims at generating a social and powerful impact. It’s pivotal to underline that the investee must guarantee the integrity of his project. That is, he needs to build a business model that defines the process through which the goals will be achieved.
This business model, moreover, needs to include these points:
- Analysis of the market – opportunities, risks etc.
- Goals, objectives and KPIs of the project
- Implementation plan
- Financial projection
- Social and beneficial return
In conclusion, what is the role of the impact investor? The latter is different from a classic investor. First, he expects that its investments eventually generate real and tangible social impact, without which the financing is goalless. Secondly, while some funds and private equity firms expect above-average returns on capital, he may accept below-market returns, too – as far as the projects that he invested in follow through their promises of social and environmental change.