Impact Investing

By M. Isi Eromosele

Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.

Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.

A rapidly growing supply of capital is seeking placement in impact investments across global geographies, sectors, and asset classes. There is the shared conviction that creative investments can play a crucial part in addressing social and environmental challenges.

This investment interest is sparking the emergence of a new industry that operates in the largely uncharted area between philanthropy and a singular focus on profit-maximization.

Despite the challenging economic environment, the impact investing industry continues to manifest itself in a wide range of innovations and entrepreneurial activities globally:

• Private equity funds that aim to provide social services businesses with growth capital are proliferating and expanding access, for example, to education, better healthcare, and decent housing for poor people around the world.
• Clients of leading private banks and pension funds are calling on their investment managers to offer impact investment options.
• Prominent family offices are actively seeking investment partnerships that can help them source, vet, and execute impact investment deals in sectors ranging from sustainable agriculture to healthcare to urban infrastructure.
• Private foundations are seeking to partner with investment banks and development finance institutions to make impact investments in areas related to their social missions.

The impact investing industry has the potential to steer significant sums of money for market-based solutions to the world's most pressing issues, including sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology, and financial services for the poor.

The Role Of The Global Impact Investing Network
Despite this momentum, the weakness of market mechanisms (such as rating agencies, market clearinghouses, syndication facilities, investment consultants) creates debilitating inefficiency that hampers investment.

The nascent industry remains beset by inefficiencies and distortions that currently limit its impact and threaten its future trajectory:

• Investors are largely unable to work together effectively given a general confusion of terminology. This limits investors' ability to share knowledge and co-invest, which perpetuates inefficiency and fragmentation in the field.
• The absence of basic market infrastructure, like standards for measuring and benchmarking performance, constrains impact and capital flows.

The combination of these factors - barriers to information flows and collaboration, a lack of infrastructure, and an underdeveloped ecosystem of intermediaries and services providers - threatens the evolution of the impact investing industry and, ultimately, its ability to realize its potential for social and environmental impact.

Individual investors and service providers lack the capacity and mandate to solve these challenges alone. The Global Impact Investing Network (GIIN) is a not-for-profit organization dedicated to increasing the effectiveness of impact investing.

The GIIN's program agenda will help it serve as a forum for identifying and addressing the systemic barriers that hinder the impact investing industry's efficiency and effectiveness.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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