Impact investing differs from other mission-driven investment strategies in that it isn’t simply about avoiding negative social outcomes in one’s investment portfolio—say, stocks in companies that pollute. It is about an investing philosophy focused on yielding measurable financial returns as well as environmental or social benefits.
A new study (1) from investment consultant Cambridge Associates, an investment advisor, and Global Impact Investing Network (GIIN), a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing, shows that some 51 impact funds, which bet on businesses that help people or causes, launched between 1998 and 2010 returned an average of 6.9 percent per year to investors through June 2014 versus 8.1 percent for conventional funds. “There's a view among some investors that impact investing necessarily entails a sacrifice in financial return," says Jessica Matthews, head of Cambridge's mission-related investing group. "This data helps to show that is more perception than reality”.
Impact investing is on the rise. Always according to the Global Impact Investing Network, the market for impact capital, currently sized at $60 billion, could grow over the next decade to $2 trillion, or 1% of global invested assets. But despite this growing interest, not everyone agrees on what “impact investing” actually means. Impact can mean anything from affordable housing in the US to renewable energy in India; from social impact bonds to private equity funds that create jobs.
However, the rapid growth of the field of impact investing has been accompanied by questions about what’s the most effective way to measure return. In short, how investors who are serious about impact investing, will know if an organization is making a difference and how they will measure their satisfaction with the social benefit from an investment. For example, how many affordable housing units were built and preserved thanks to their impact investment.
But while efforts to measure the social impact of investments are still underway, something is changing in the attitude of many social impact investors. They seem to target gender equality as a category of analysis when making investment decisions. Why? Women, are wealthy and socially conscious.
Here are some best practices. Women produce more than half of the world’s food, yet own only two percent of titled land and receive less than 10 percent of credit available for small businesses. Root Capital, a non-profit social investment fund that grows rural prosperity in poor, environmentally vulnerable places in Africa and Latin America, launched in 2012 Root Capital’s Women in Agriculture Initiative. The aim is to focus on industries that traditionally employ large percentages of women, as well as businesses led by women entrepreneurs and managers. The organization believes that increasing women's participation in the rural economy is a powerful tool for poverty reduction and economic growth because female make investments that benefit not just themselves but their families and their communities.
In many countries, access to both financial products and bank accounts requires the husband’s agreement or property deeds that women rarely have. While 2.5 billion people in the world do not have access to formal banking services or microfinance, women are the first to be excluded. In developing countries, 46% of men say they have a bank account, against only 37% of women. If Microfinance has led the way for impact investing by helping poor women to become entrepreneurs, microsaving is working much better. There’s a common, misguided, knee-jerk reaction that if you’re poor, you have no assets to save. People who are poor obviously save less, but they still save. Kiva program, a nonprofit working in more than 80 countries, invest in low-barrier savings options giving women more control over their financial resource.
Still, there are various arguments for bringing more women into the highest levels of corporate power. According to many studies, companies with the highest representation of women board directors attained significantly higher financial performance, on average, than those with the lowest representation of women board directors. Women’s World Banking is a global non-profit focusing on developing women’s personal leadership style and skills to best contribute to their organization. However, many still complain that there is still much to do before impact investment community pay more attention to women-centered investment opportunities. This is most due to a number of factors beyond the scope of impact investors, such as cultural norms and an education gap for women in some countries.
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