Benevolent Capitalism: Defining the lingo: what is impact investing?

If you are interested in social enterprises, impact investing, start-ups, Asia, empowerment, and stories of unreasonable people committed to make the world a better place, then you may decide to read on.

I will explore the intersection of many different worlds that typically don’t intersect. At this intersection where traditional finance meets non-profit, start-up meets government, Silicon Valley meets Dhaka, there is a new type of ecosystem being built. I have found beauty in such contrasts, where in one conference room, the lady to my left may be a Goldman Sachs executive, to my right, an Indian market weaver, across the table, a member of the Singapore ministry.

This all occurs in a city called Singapore, which I have found to be quite a surprising intersection of many different worlds itself. Often referred to as the “benevolent dictatorship”, one might wonder whether Singapore might just be the ideal place to build a “benevolent capital markets”, a capital markets organized for the purpose of doing good.

Friday, May 27, 2011

Defining the lingo: what is impact investing?

Impact investing is defined as investments intended to create positive impact beyond financial return in the J.P Morgan Global Research Report (Impact Investment: An Emerging Asset Class, November 2010).

Impact investing is considered a subset of socially responsible investing, which historically, has meant the screening of investments to exclude what the investor perceives as “bad” such as cigarettes, gambling, etc. Impact investing may fit into this larger pool of “good” investments, but impact investors tend to take a more active role, purposefully placing capital in investments that are designed with intent to make a positive impact. The impact investor does not seek investments that may happen to have unintentional positive social consequences. The social and environmental impact is a core part of the social enterprise’s business strategy, and is how the business measures success.

In terms of returns, impact investments are expected to return at least nominal principal (meaning you invest $10K, you should at least get $10K back at end of term). And the expected returns range from attractive private equity-like financial returns of 20-25% (e.g., Ignia Fund in Latin America) to below market rates.

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SUMMER 2011 SPONSORS

My fellowship in Singapore is made possible by the Women and Public Policy Program of the Harvard Kennedy School, and the Roy Family Internship Program.

Changing the world, one gender-focused internship at a time, the WAPPP has enabled a small group of us to go forth this summer to “tackle” some of the world’s most pressing social and environmental challenges.

As part of my own work this summer with Impact Investment Exchange Asia (IIX), I will be identifying potential areas of influence where IIX can play a role in improving gender equality, whether it be by increasing the number of women entrepreneurs and managers at social enterprises, improving the measurement of gender-related impact metrics, or engaging more capital focused on gender issues.