There’s a growing sentiment, particularly among millennials who will in the near future be inheriting trillions of dollars, that the existing financial system is too focused on profit seeking rather than connecting those who have capital to those who need it. Impact investing is a branch of socially responsible investing that seeks to remedy that.
The promise of impact investing is that it has the potential to connect local populations to the capital they can use to create opportunity and raise living standards for themselves while still unlocking financial value for investors.
Get the facts on impact investing and learn how you can get involved.
1. What is impact investing?
- What is impact investing?
- What is Socially Responsible Investing (SRI)?
- What is ESG?
- When did impact investing start?
- Does impact investing work?
- What’s the advantage of impact investing compared to other kinds of investing?
- Does impact investing mean you have to accept a lower rate of return?
- How is impact investing being used?
- How big is the market for impact investing?
- Who is using impact investing?
- Where can I find out more about impact investing in Canada?
- How is World Vision Canada applying the principles of impact investing?
- How can I make a difference through impact investing?
Impact investing is a type of socially responsible investing (SRI) where capital is specifically deployed to achieve measurable social or economic goals while earning a financial return.
Think of the distinction this way: socially responsible investing generally seeks to avoid harm through the use of strategies like “negative screening” while impact investing goes further by applying intentionality to the pursuit of social goals or change.
In every other respect, impact investing works like traditional investment and uses the same investment vehicles and instruments. These can be anything from bonds to mutual funds to equity and beyond.
Workers at a food production facility assisted by World Vision Canada’s Impact Investing arm, Origin Capital, in Chillaw, Sri Lanka. Photo: World Vision Canada
2. What is Socially Responsible Investing (SRI)?
SRI is an approach to investment that considers not only financial return in allocating money, but also the impact of that investment according to Environmental, Social and (Corporate) Governance (ESG) criteria, such as whether the investment accounts for women in leadership positions, food security, the reduction of greenhouse gas emissions or corruption, to name a few.
3. What is ESG?
ESG stands for Environmental, Social and (corporate) Governance, and refers to the factors considered in socially responsible investing. They measure the sustainability and ethical impact of a given investment as a way of figuring out risk and future financial return.
4. When did impact investing start?
There is no official start date as impact investing grew out of socially responsible investing, and has arguably been practiced for hundreds of years, but the term itself was coined in 2007 by investors during a meeting at the Rockefeller Foundation.
5. Does impact investing work?
Impact investing can be as effective as any other type of investing, with the added benefit of positively transforming the lives of the communities it touches. In Sri Lanka, for example, World Vision Canada’s impact investing program helped a small entrepreneur access loans and business development support. This in turn positioned the entrepreneur to take on a new client and hire 20 new employees.
“We’ve seen clients then be able to access commercial financing which is really our end goal, which is to have them graduate from us and be able to take money from a bank or commercial lenders or equity,” says Sarah Tinsley, lead, Small and Growing Business Bond at World Vision Canada.
6. What’s the advantage of impact investing compared to other kinds of investing?
Impact investing takes SRI one step further by intentionally targeting measurable, positive social and economic outcomes.
Workers at a fish processing facility that is assisted by World Vision Canada impact investing in Negombo, Sri Lanka. Photo: World Vision Canada
7. Does impact investing mean you have to accept a lower rate of return?
No. According to the 2018 Global Impact Investor Network (GIIN) survey
, 64 per cent of impact investors target risk-adjusted market-rate returns. The remaining 36 per cent target below-market-rate returns.
While it may seem at first counterintuitive that a focus on social goals instead of profit can earn competitive returns, studies show the opposite
—impact investing generates good returns. According to GIIN
, “As in conventional markets, however, performance varies from one fund to the next, thus indicating that fund manager selection is key to achieving strong returns. Generally, the range of fund returns in impact investing mirrors that in conventional investing."
Of course, the point of impact investing is that success is also defined by the achievement of the social goals in question. When an investor is investing for impact she is backing projects that are sustainable, accessible and address root causes at a local level. It helps tackle issues such as poverty, food security, healthcare, education, gender equality and more.
As a purely financial instrument, impact investing can generate market-rate returns, stabilize a portfolio by reducing volatility
(the ups and downs in the value of a portfolio) and generate a higher ROI
(return on investment). Unlike donations or grants, impact investing can help businesses grow sustainably.
8. How is impact investing being used?
Impact investing initiatives run the gamut of causes, from education to forest protection to homelessness to small business development. London, Ontario’s Verge Capital, for example, manages the Breakthrough Fund
supporting affordable housing, community real estate and established social enterprises in southwestern Ontario.
In Brazil, venture capital firm Vox Capital deploys capital
intended to reduce social inequality in the education, health and financial services sectors.
In Lira, Uganda, the World Food Bank has partnered with local startup Soya Solutions East Africa Ltd. to strengthen soya production sources in an investment that will create as many as 5,000 local jobs, new income sources and improved nutrition for the community’s families.
9. How big is the market for impact investing?
At US$228.1 billion ($14.8 billion in Canada)
globally, impact investing represents a modest part of the almost $US30 trillion pie attributed to socially responsible investing. However, the sector is growing due to a highly motivated millennial and female demographic, alongside shifting attitudes among some of the world’s biggest investors.
Most notably, BlackRock CEO Larry Fink in 2018 called on investors and companies to adopt environment, social and governance (known as “ESG”) criteria in their investment practices
10. Who is using impact investing?
At present the market is dominated by financial institutions and specialist fund managers
. That’s starting to change, however. Today, the average or retail investor can participate by buying directly into the many mutual and exchange traded funds or bonds in the market that serve impact investing.
11. Where can I find out more about impact investing in Canada?
There are a number of venues where you can learn more:
12. How is World Vision Canada using impact investing?
Through Origin Capital, World Vision Canada manages three funds dedicated to impact investing:
Supported by an impact investment from World Vision Canada, Sri Lankan entrepreneur Gayani Fernando manages business administration in Negombo, Sri Lanka. Photo: World Vision Canada
13. How can I make a difference through impact investing?
- Origin Capital Small and Growing Business Bond: This bond fund provides funding, business tools and training to entrepreneurs in developing countries so they can create positive social impact in their businesses, their families and their communities.
- Origin Capital Venture Fund: This fund supports entrepreneurs working in developing countries by providing capital, local knowledge, market linkages and business support services.
- Origin Capital Social Innovation Challenge: Structured as an entrepreneurship competition, the Social Innovation Challenge provides seed funding and one year of support to the winners who then implement their business plan. The challenge operates out of Canada and is implemented in a different country each year. For 2019, the challenge takes place in the Philippines.
You can find many projects to invest in through venues such as Open Impact
and the SVX
impact investing platform. You can also get involved with World Vision Canada’s Origin Capital
We’re a development organization with a 60-year history, 100 country offices and 40,000 people around the world who know the issues local populations are facing and can directly apply that knowledge. Origin Capital also has a willingness to go into places where traditional investment providers aren’t operating because it’s too hard/costly or out of due diligence concerns that our existing network solves.
Our network is drawn from people who live and work in these communities—for example, farmers, agricultural and technical staff. The decision on where to invest funds isn’t made by people sitting in Canadian offices; instead that decision is made by Vision Fund (World Vision’s microfinance subsidiary), which represents Origin Capital’s “boots on the ground.”
Sarah Tinsley, lead, Small and Growing Business Bond, describes the SGB Bond as being about “capacity building.” “We have client relationship officers [who have] been working in these communities for years. They know the local business context. So when they’re giving out loans they’re doing their due diligence, but they’re also looking at how they can then provide business development support to these clients and what the opportunities would be.”
“It’s not somebody going to sit in a training course on bookkeeping for 8 hours, getting their free lunch, signing their piece of paper and then going off to do business as usual. It’s somebody actually saying, ‘Let’s sit down, let’s look at your business. Where can you grow? What are your opportunities? What are the threats? Let’s work together.’”