Investing for Impact

Governments and charities do not have sufficient capital nor the complete skill set required to solve the world’s pressing challenges. At the same time, the recent economic crisis has shaken established orthodoxies about the risk and return profiles of traditional investments. The Impact Investment sector is emerging as a partial answer to the twin challenges that these two realities present: Impact Investment unlocks substantial capital to build a more sustainable and equitable global economy while allowing for diversification across geographies and asset classes.

A plethora of investments is emerging across multiple asset classes that provide investors with market-rate investments, or for more altruistic investors, substantial social impact, while still generating positive financial returns. The old binary system — the widely-held belief that for-profit investment could only maximise financial return while social purpose could only be pursued through charity — is breaking down.

This report is intended for the investment community and aims to help investors understand this emerging industry. Many investors have begun to explore Impact Investments by investing in microfinance in developing countries or community development projects in the US, however, there is still a perception that Impact Investment always entails a sub-market financial return, which this report demonstrates is far from the case. For example, Lyme Timber, a forestry fund based in Hanover, New Hampshire, has been able to utilise conservation contracts, partnerships with the Nature Conservatory, and deep industry experience to invest in sustainable forestry projects throughout the US. These projects help conserve local forests, while delivering market to above-market returns to their investors.

Meanwhile, the industry is developing globally and the financial products available for investors are diversifying. Investments range from tropical rainforest preservation in South America, to finance for charities in the UK, to low-income housing development in New York City, to infectious disease prevention in Africa.