Everything you need to know about IMPACT INVESTING

Transcription

1 Everything you need to know about IMPACT INVESTING

2 Table of content 1 Understanding impact investment.....p.3 7 Impact investment in the UK...p Breaking down impact investment.p.4 First year of impact investment...p.5 8 Impact investment in Asia...p.12 9 Impact investment in Africa..p.13 4 The current state of impact investment.p.6 5 The future of impact investment.....p The process of impact investment..p.14 Why impact investment...p.15 Impact investment in the U.S..p Sources.p.16

3 Understanding impact investment 3 1 What is impact investment Investments that are made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return. 4 How does it work Giving back to the community through helping the less fortunate or investing in sustainable energy practices. The impact will differ depending on the industry and the company. 2 Choosing the market Investors choose the market that meet their strategic goals either in emerging and developed markets or target a range of returns from below market to market rate. 3 Helping & benefitting Promote the welfare of others, expressed through the generous donation of money to good causes but at the same time will also be benefitting for you in return.

4 Breaking down impact investment 4 How does impact investment work? The bulk of impact investing is done by institutional investors, financial service companies, web-based investment platforms, and investor networks now offer individuals an opportunity to participate in it. One major venue is microfinance loans, which can provide small-business owners in emerging nations with start-up or expansion capital. Women are often the beneficiaries of such loans. Impact investing need not always be profitable; investors often factor in social gains or goals. Four characteristics 1 Intentionality To have a positive social or environmental impact through investments. 2 Investment with return expectations To generate a financial return on capital or at minimum, a return of capital. Who is impact investing? Impact investors has attracted a wide variety of investors, both individual and institutional; foundations, governments or high net worth individuals and each type has different motives for investing. When choosing to become a part of impact investment, the individual will often choose to invest through funds whose social, environmental, and financial goals match their own and also based on the four core characteristics. Recipients of investment may be small start-ups, profit-making social enterprises looking to scale up, mature company funds. 3 Range of return expectations and asset classes 4 Range from below market to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity. Impact measurement Risks and financial returns at the pre-investment stage, measuring financial returns and outputs after investments decisions has been made, and standardizing results measurement infrastructure including rating or scoring system that largely focus on internal business management and operations.

5 Year of first impact investment Statistic of organisations that decided to make their first impact investment from pre-1996 up to % of respondents from 119 organisations made their first impact investment within the last 10 years. Just under half (45%) of below-market-rateseeking investors began their practice in the last 10 years, compared to 63% of market-rate-seeking investors. Another interesting comparison is that 74% of Private Equity Investors made their first impact investment in the last 10 years, compared to only 37% of Private Debt Investors. 0 0 Number of organizations that made their first impact investment that year Cumulative

6 The current state of impact investment How was impact investment performing previously to most recently? 6 100% 90% 80% This graph shows how impact investment is performing from year % 60% 50% 40% 30% 20% 10% Based on the result of the graph, it shows that impact investment is performing well although there may be some underperforming, the percentage of overperforming and being inline is higher which means that it will not effect the value of impact investment. 0% Outperforming Inline Underperforming

7 7 According to impact investors, there are ranges of challenges within the industry. The progress in the graph indicates the percent of respondents that noted some or significant progress on this indicator from the previous graph. Respondents ranked the top five challenges from a choice od nine options. score is calculated by weighing each rank by the number of respondents that selected it and summing those weighted totals.

8 8 The Sustainable Development Goals, adopted by the United Nations in 2015 which called for a collaboration of the private, public, and philanthropic sectors to end poverty and ensure environmental sustainability by One year since their launch, 26% impact investors reported that they actively track the performance of some,or all of their investments with respect to the SDG in which another plan to do so near the future. Although this market is relatively new, investors are overall optimistic about its development and expect increase scale efficiency in the future. Emerging Market-focused respondents are more likely to track the performance of their investments relative to the SDGs, with 37% already tracking the performance and 38% planning to do so in the future. Developed Market-focused respondents is less likely to target the SDGs, with 56% reporting they have no such plans. (Source: GIIN) Tacking Impact investment performance to the UN SDGs In recent years there has emerged a new collaborative international effort to accelerate the development of a highfunctioning market that supports impact investing. 40% 34% 16% 10% No, and we don t have any foreseeable plans to do so. No, though we plan to do so in the near future. Yes, for all of our investments. Yes, for some of our investments Impact investors generally recognize broad progress across key indicators of market growth but also acknowledge that some challenges remain.

9 The future of impact investment 9 Crowdfunding There are many online crowdfunding webpages like Kickstarter, GoFundMe, etc., where it will allow people to share what they have created (the idea of their business) or a campaign they are raising money towards. The idea & the world Just like finding a sponsor for a business plan or to donate money to their campaign, crowdfunding happens online and all around the world. The business owner will pitch their idea and their product on the selected webpage, depending on how much the person would like to donate, the owner will gift their product to you accordingly. 1 2 Marketing Once one person fund the project or the campaign, they will usually share it on social media which will gain more interest and the cycle goes on, once one person shares it on social media, it will have a chance of the campaign to be in global reach. What you donated You receive the product What you have donated will be used as a funding to create the product or goes towards the campaign. The result will 3 4 If you have donated your money towards a business idea where a very impressive product will be created, often be what you paid for and you will get some form of based on how much you have chosen to donate, you evidence on what has the money that you have donated been used for. 6 will receive the product prototype accordingly.

10 Impact investment in the U.S Impact investing has grown by 33% since 2014, according to the US SIF Foundation s 2016 report. Investors now consider environmental, social, and governance across $8.7 trillion of assets professionally managed in the U.S., about a fifth of total assets under management tracked by Cerulli Associates. Bank of America aligned its 2012 commitments of $50 billion over the next ten years to advance a low-carbon economy with SDG7: Affordable and clean energy. In order to achieve their goals, Bank of America will employ a wide range of financial tools for clients. The Inter-American Development Bank committed to advance partnerships related to the SDGs to end hungry, achieve food security and improved nutrition, and promote sustainable agriculture. It also plans to support those who are affected by malnutrition.

11 Impact investment in Europe 11 Million 22, , , , , According to the responses collected by Eurosif, European Impact investing marketing has grown significantly between the first time Eurosif started to measure the market, and 2013 it reached about 20 Billion. Growth : 131.6% 2011: 8, : 20,269

12 Impact investment in Asia Impact investment in Asia 12 1 India is the largest and most active impact investment market in the region, benefitting from a broad range of investor and entrepreneur experience with impact investing. 7 Sri Lanka offers a relatively favourable regulatory environment for investors. In 2015 over $100 million has been deployed by non DFI impact investors in Sri Lanka and a further $386 million has been deployed by DFIs, demonstrating investment friendly. 2 India, Pakistan and Bangladesh are the most active countries for impact investing in the region. Non DFI- impact investors have USD 162 million and USD 121 million in Pakistan and Bangladesh, relatively. 8 Myanmar and Sri Lanka are two of the fastest growing economies in the region. 3 DFIs have deployed $1.8 million and USD 834 million Domestic investors and fund managers in Pakistan have demonstrated optimism about the industry, given the large domestic market In Bangladesh, market potential based on GDP and large population, a long-standing presence of development finance institutions (DFIs) are key facilitators of impact investment. In Nepal, there has been relatively little impact investing activity. Approximately $54 million has been raised or committed by DFIs and funds; however, this money has not yet been deployed India Pakistan Bangladesh Sri Lanka Nepal Myanmar Acronyms DFI: Development Finance Institution DFIs Funds

13 Impact investment in Africa 13 An interest for impact investment has grown in Africa. The ultimate aim of the impact investment in Africa Action Plan is to support the development of a vibrant impact investment sector on the continent. Opportunities: Healthcare, water, and sanitation. Agriculture and food security. Energy access, infrastructure, financial services, access to affordable housing.

14 The process of Impact investment Reflect Assess Strategize Identify your motivations and Determine the needs and constraints that Develop an actionable impact 1 find out which types of impact investment suit your life and govern your asset consider how those constraints shape your investment strategy. finance most. strategies. Explore Make an understanding the principles and practices of impact investment. Optimize Measure Invest Use the data that you have Gather and asses performance You can make these investments gathered to expand your Impact and impact data to see whether across asset classes, sectors, investment strategy in order to they meet your impact geographies, impact strategies, gain better outcomes from with investment strategy. and return profiles. what you have invested into.

15 Why impact investment 15 Impact investor s motivations Many types of investors are entering the growing impact investing market. Here are a common investor motivations: Performance relative to expectations An overwhelming majority of respondents reported that their investments have either met or exceeded their expectations for both impact (98%) and financial performance (91%). 98% 91% 1 2 Bank, pension funds, financial advisors, and wealth managers can provide client investment opportunities to both individuals and institutions with an interest in general or specific social and/or environmental causes. Institutional and family foundations can leverage significantly great assets to advance their core social and/or environmental goals, while maintaining or growing their overall endowment. 3 Government investors and development finance institutions can provide proof of financial viability for private-sector investors while targeting specific social and environmental goals. Impact performance Financial Performance

16 Sources 16 Impact investment in the U.S.: ThinkAdvisor Impact investment in the U.S.: Impact Alpha Impact investment in Asia: GIIN Current state of impact investment: GIIN Impact investing in Europe: Eurosif Impact investing in Africa: UNDP Icons and graphics: Flaticon The process of Impact investment: She Leads Africa Risk picture: D3images on Freepik Graph with currency picture: Freepik 2016 Annual impact investor survey: GIIN 2017 Annual impact investor report: GIIN