There is a limit to how much we can achieve through philanthropy. Compared to NGO’s and Governments; Businesses will always have the maximum drive and maximum amount of money. The idea is to inculcate social good within business. This will ensure higher focus and performances.
Businesses are focused on profits and rightly so; since their primary goal is to maximize shareholder returns. If we can inculcate societal good within their primary focus; as in their primary focus becomes profits along with societal good; the world becomes a better place to live in and sustainable.
Impact investments offers investors and funds an opportunity to advance the causes of environment, social and governance and also produce financial returns.
How do Impact Investments perform financially?
Impact investors have diverse expectations. There are a few which target lower than market returns and focus on impact. Most however target market returns. There is a clear cut differentiation between both these types of investors.
Investors with an eye on market rate returns are growing in numbers and quantum.
High networth individuals globally have risen to the fact that impact investments make business sense. There is a large number of family offices which are now working on investing in impact investments, either directly or indirectly through funds.
The General Belief
The general belief is that since impact investors target environment ecology or governance returns they are lesser effective in creating financial returns. However a survey of large funds and investors indicates that the financial returns generated by impact investors are in line with other investors.
Why returns will grow?
Moreover large corporates are today using sustainability norms towards innovation. It has also been seen that using CSR & Sustainability within the supply chain has enabled corporates to garner higher returns in terms of product, sales, innovation, customer support etc…this in turn has created larger opportunities for impact investors to invest in.
The Value Chain in place today
Today the impact investment market is very much developed (although a lot more can be done and its actually a work in progress) The value chain consists of governments, funds, large corporates, intermediaries, banks, family offices, financial advisors, wealth managers, institutional investors and many others. Each plays a role in either sourcing funds or sourcing investing opportunities or credit risks or measuring impact.