Social impact investing is a new and evolving industry, but one thing is clear – It’s impossible to clearly define “social impact”.
There are some definitions that provide a little clarity:
From the Global Impact Investing Network (GIIN):
Impact investing aims to solve social or environmental challenges while generating financial profit. Impact investing includes investments that range from producing a return of principal capital (capital preservation) to offering market-rate or even market-beating financial returns. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.
The problem is, there are a ton of companies that could fit that description. Even a company that exists solely to turn a profit could argue that their economic impact is solving a social challenge and is “harnessing the positive power of enterprise”.
So how does the Impact Angel Group determine whether an investment is an impact investment?
It’s not a perfect science. We apply our investment criteria, try to make sure the company really intends and is passionate about creating an impact and……We Vote. If enough of our voting members agree it’s an impact investment, we consider it as such. Is this the best approach? Maybe not, but we’ve decided we could either spend 20 years arguing about what is or isn’t an impact investment or we could just try to make an impact.
What’s your definition of social impact investing? Leave a comment to weigh in.
“… harness the positive power of enterprise.”
I think that phrase is key. In my world of selling solar charged lighting to off-grid customers using innovative financing solutions, its easy to tout the direct impact of the product: No open flame hazard, reduces indoor air pollution, reduces unsustainable fuel (sticks) gathering practices, reduced lifetime CO2 emissions, brighter, long-lasting, etc. These things all sound good and probably are or, at the very least, are things with few bad un-intended consequences. But they don’t much move me. Because, brighter and long-lasting excepted, they are things that don’t matter much to my customers.
What excites my customers is the economic opportunity these solar charged lamps provide: They eliminate the never ending out-lay for lighting fuel, freeing up capital for other things. With a lamp and a small amount of their own capital at risk, my customers can earn money collecting deposits on lamp sales to their neighbors, and by subsequently selling them days-of-light. Because we have an innovative way to collect, we are able to lend working capital to local VARs – i.e. shop keepers – as our risk is lower than that of a traditional financial institution. In the developing world, where there is such a dearth of economic opportunity, these things make an impact.
If the investment of your time, money and/or talent creates an opportunity for a business’s customer’s to improve their circumstances – their income, health or education – with few bad un-intended consequences to them or society, that’s a impact investment. If the risk/reward ratio clears your hurdle, that’s an impact investment to consider.