What a difference a year makes…..the world of impact investing
“What is social impact investment?” and “why should I get involved?” were common questions I would get from investors and entrepreneurs when we first launched Nesta Impact Investments nearly a year ago. Fast forward twelve months and the recent Global Impact Investment Network Forum (GIIN) made me realise what a long way impact investing has come.
This small and diverse sector is starting to mature and is becoming more sophisticated in its approach to tackling social and environmental issues. At GIIN there were over 400 delegates from 34 countries discussing issues pertinent to the success and scalability of this new investment sector.
The funding needs of front line organisations tackling key challenges in society such as education, housing, health, youth justice, employment, has led to the development of a spectrum of financial products. From fixed income products offering capital security and bank-like rates of return, to payment by results ‘bonds’ all the way through to high risk equity funds – depending upon your risk appetite, geographic orientation and socio-environmental focus – there seems to be something to suit every investor and investee.
So, can this diverse sector meet the growing demand for financial support from socially motivated and impactful organisations?
What struck me most is that there is now a strong desire to see this investment approach become mainstream, but for that to happen we need to talk about the investments we are making and show the impact they are having. With a positive financial and social track record, it is entirely rational to assume that there will be a broadening in the sources of capital. There are a small but growing number of funds/investors who are starting to demonstrate their success; there is increased diversity of funds under management and continued innovation in how financial instruments can be applied to social issues.
We have a way to go. Impact investment in the UK currently makes up a tiny fraction of the billions of pounds of mainstream investment products – c.£200m is Big Society Capital’s latest estimation – so even if this sector were to double or triple in size it will still be a drop in the financial ocean.
But the encouragement I took from the GIIN forum is that there is a growing professionalism and ambition to use money to generate a return whilst delivering social solutions to some of the toughest problems facing the world today. I left the conference more hopeful than ever that we are carving that middle path between financial and philanthropic motive, without a trade-off between the two.
By Alex Hook - Nesta Impact Investments