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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