A traditional view of finance dictates that money can be used in two ways; investment for a financial return or philanthropic giving. For those with money to invest, it has often been a choice between the two, with the driving force being the objective of either earning returns or doing good for society with no return expected.
Yet, as a growing number of investors seek to make the world a better place, demand for investment options that deliver both has been on the rise. This was supported by findings in a UK Government review, entitled “Growing a Culture of Social Impact Investing”, that found the supply of products in the social impact investing sphere had not caught up with demand.
While socially responsible investing (SRI) has been around for several years and, more recently, is being driven by millennials who use both their heart and their head when making their investment choices, impact investing is adding another element to the agenda – the ability to measure the social effect of the investment and to compound the positive social effect by recycling the original capital.
Below we look at some of the objectives of Social Impact Investing (SII).
Those receiving the invested money will aim to repay the investors; this can either be the original sum invested or an additional income in the form of interest, dividends or an internal rate of return.
By enabling social enterprises to scale up their commercial operations and social mission, SII actively solves specific social needs in three ways; measurably, by providing tangible results; sustainably, by generating returns that enable further investment; and definitively, by placing social impact at the core of both its measure of success and its business model
As SII is an investment, there is a two-way relationship between the investor and the investee. With the investee being accountable for returning capital, this encourages a commercial approach that requires effective management of the business, just like any other commercial organisation.
In order to gauge the success of SII, the investee is obliged to track, report and provide evidence of the impact of the investment to the investor, from the moment the investment starts to benefit society to the point that capital is returned. This includes details of the output itself, be it products or services, that have been produced as a direct result of the investment as well as both the short-term changes and long-term benefits.
SII is essential to the commercial growth and impact that social enterprises can have. By operating in a commercial way, the success they have can generate positive social impact way beyond the term of the initial investment.
Nathan Mead-Wellings, Director of Finura, comments: “We are witnessing an increased call for sustainable investment opportunities, as it tends to be driven by the same emotive and personal passion that philanthropic giving is but with the added benefit of potential financial returns. Impact investing is essentially a subcategory of commercial investment, but with a sustainable and impactful twist and, as such, we believe it should still be viewed as part of a wider, diverse strategy that is combined with other investment asset classes.”
If you would like to discuss SII opportunities as part of your portfolio, please contact your Finura adviser.
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