Impact investments, also referred to as Development investments, are investments made with the intention of having a positive social and/or environmental impact – not only for profit.
The industry of impact investing is directing capital to companies and social enterprises that deliver housing, energy, health services and agricultural inputs to poor populations. It includes actors working to invest in ventures that help conserve nature, reduce climate gas emissions or improve energy efficiency. It is a movement consisting of hundreds of actors across the globe who are working with one common goal in mind: harnessing commercial capital to address some of the greatest challenges of our time.
Impact investing is a recognition of the fact that despite significant global efforts, traditional development assistance and philanthropy is not enough to solve the problems of poverty and environmental degradation. Commercial capital, as well as government and philanthropic resources, need to be harnessed.
Impact investing also harbors the view that modern capitalism has gone too far in single-mindedly pursuing profits in the short to medium term. By overexploiting the resources of our planet, it could put humanity at risk. By recognizing that positive social and environmental impact can be created while also making a profit, it encourages asset owners to think differently about the meaning of capital.
Companies and social enterprises can often be a more effective way of delivering critical goods and services to the poor than traditional aid. For non-profits, scale will always be limited by the availability of grant funding. For-profit vehicles can scale faster, both because they can reinvest profits and because they can access vast pools of commercial investment capital. The profit imperative may also lead to more efficient resource allocation. Ultimately, for-profit institutions are able to scale, self-sustain, and provide proven value to customers – which is demonstrated by customers’ willingness to pay.