Impact investing.

 

For hundreds of years we have become increasingly good at maximising profits. By seeking to maximize profits we ensure that our finite resources are used most efficiently. This simple concept has spurred fundamental economic development and transformation across the globe. In this conventional thinking, the pursuit of economic profit may also produce, as a by-product, social benefits or costs. However, any such social benefits are just that - only a by-product, not the main game.

 

Over the last decade, thinking has started to change. Some investors have started to ask: Is it possible for companies to deliver products and services where the primary objective is to deliver meaningful and measurable social impact and where the business model is profitable, sustainable and delivers above market returns to shareholders?

 

This is exactly the type of world envisaged by Pangaea. Where the meaningful and measurable social impact of an enterprise sits alongside – in fact, is integral to – a strong and sustainable business model.

 

So, what is ‘impact investing’?

 

Over the last 20 years there has been a growing consciousness within segments of the investment and business community of the need for a more holistic and socially responsible approach to the deployment of capital.

 

This led to the emergence of concepts such as socially responsible investing and corporate social responsibility. In the early days, this really equated to ‘negative screens’ – that is, finding ways to identify the least socially responsible companies – either because of the negative social impact of their products and services (for example, tobacco or fast food) or because of their production or operational processes (for example, environmental destruction from non-sustainable logging). By identifying these companies and then reducing exposure to these companies within a portfolio, a fund could be seen as ‘ethical’ and ‘socially responsible’ and therefore attract a new breed of ‘socially aware’ investors.

 

The term ‘Impact Investing’ was first coined by the Rockefeller Foundation in 2007 to describe a new investment philosophy that extended beyond the early concepts of socially responsible investing and corporate social responsibility. In essence, just as businesses could generate unintended negative social costs, they could also produce positive social impact.

 

The concept of impact investing has more recently been defined as:

 

Impact investments are investments made into companies, organizations and funds with the intention to generate measurable social and environment impact alongside a financial return.  

Global Impact Investing Network, as cited by Greene (2015)  

 

And:

 

Impact investing is the unlocking and placement of capital to achieve social or environmental impacts as well as financial returns.  

Jackson and Harji (2014)

 

Impact investing is big and growing.

 

A survey of 146 investors and funds engaged in Impact Investing in March 2015 identified these organisations had committed US$10.6B in 2014 and they expected this to increase by 16% to US$12.2B in 2015.  This would take the total funds in Impact Investments to US$60B (JP Morgan, 2015).  It is estimated that Impact Investing will grow to between US$400B and US$1T by 2020 (JP Morgan, 2010).

 

Give me an example (or five)…

 

Here are just a few examples from Australia and abroad…

 

  • Education – In Australia, Maths Pathway is implementing an innovative teaching and learning model that leverages adaptive technologies to dramatically improve mathematics. Students using Maths Pathway experience a doubling of learner growth. Today, more than 35,000 students and 2,000 teachers use Maths Pathway. 

  • Disability Services – Hire Up is an Australian social enterprise that provides an online platform for people with disability to find, hire and manage support workers who fit their needs and share their interests.

  • Food Waste – In Australia, 9.5 million tonnes of food is discarded each year. It’s estimated that between 400,000 and 600,000 tonnes of that food is accessible, edible, quality food and could not just be rescued, but used, eaten and enjoyed. Yume is a wholesale marketplace for surplus food that saves producers and customers money while saving the planet.

  • School Nutrition – In the US, Revolution Foods is disrupting the US$25B school lunch market by providing over 1 million healthy, nutritionally balanced lunches with natural ingredients to schools every week at a price point competitive with traditional suppliers. Revolution Foods is on track to produce annual revenues of $100m and deliver above-market returns to it foundation investors.  

  • Affordable Housing – In Mexico, the Jardines del Grijalva Project provides housing and mortgages to 1,800 people who earn less than $10,000 per year. Backed by Ignia, the project provides capital to small local developers who often suffer from a lack of capital through traditional financiers. The project is expected to deliver above market returns and help alleviate a chronic shortage of affordable housing in the communities in which they operate.

 

To learn more about Impact Investing, check out the following:

 
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© 2020 Pangaea Impact Investments