What is Impact Investing?

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What is Impact Investing?

Impact Investing is not necessarily new, but the phrase has been more recently used. It’s essentially a phrase that is used to cover a range of organizations and companies that focus on building an ecosystem of the double bottom line results through financial and ESG impact. ESG stands for Environmental, Social, or Governance.

Most of these companies will focus on for profit companies that focus on building a business that creates social impact as a core part of its mission. I’m a really big fan of impact investing companies because they help to foster this ecosystem that encourages companies to be creative and innovative with their business models to bring positive ESG impact along with their business goals. And I really believe that if every company steps in and thinks creatively, they can make some sort of ESG impact. And if every company chips in, we will have more players to make a dent in our problems.

Types of impact investing companies may be:

  1. Impact Investing Capital Firms
    1. These are a bit more similar to your Venture Capital firms where the focus will be on companies and organizations that usually are for profit and creating ESG impact as well. They can invest in these companies with debt or equity capital. These firms can simply invest in any organization that brings a financial and ESG impact. Or they can specialize in a certain area such as fintech, agriculture, water, in a certain country, a certain city, etc.
    2. Example Companies
      1. Acumen Fund
      2. Rockefeller Foundation
  2. Advisory
    1. Advisory firms will be a bit more similar to consulting firms except that they focus on many areas or a specific area of impact investing. They can be focused on helping foundations, funds, or family foundations on how they can get involved in impact investing, navigating the industry, creating contracts, or simply helping social enterprises perform better. They also perform a lot of the necessary work of educating groups about impact investing.
    2. Example Companies
      1. Arabella Advisors
  3. Data Analytics and Measurements
    1. These firms will be doing a lot of research on companies and organizations to seek ways to measure not just financial but ESG returns. It’s important to know that the capital that you’re investing and pouring into a company is actually giving back some sort of return.
    2. Example Companies
      1. Global Impact Investing Network
  4. Pay for Success – Social Impact Bonds
    1. This is a really cool model where there are generally 3 parties involved. The government, the service provider (usually a non profit service provider, can be for profit), and a financial source or funder. So usually the government will have a problem to solve and wants to see if they can have someone solve it better or at a lower cost. They will offer a certain amount if a service provider can perform the service within certain cost and if it reaches certain social goals. The Funder will first put up the money for the project. If the project reaches the agreed upon goal, the government will usually repay the Funder with an additional return. If the service provider doesn’t reach the agreed on goals, the government doesn’t have to pay back the Funder or maybe a philanthropic foundation will step in to give back to the Funder a certain amount. It lowers risk on the government and provides non profit providers with capital to perform much needed services that can hopefully solve some pretty big problems.
    2. Example Companies
      1. SocialFinance
      2. Quantified Ventures

I’m sure there’s more categories as I look more into this! I’m looking to somehow get into all of this myself! Keep you updated and just sharing the love.