Book: Impact Investing at a crossroads

Impact Investing

• Investors put funds into assets that yield social benefits alongside financial returns.
• Impact investors aim for both a beneficial social and financial return on investment (ROI).
• Academics as well as practitioners have responded favorably to the idea.
• According to some, investors that are savvy will reap massive rewards from this strategy.
• Some have called it a transformational investment vehicle and a force for positive disruption.
• Others noted impact investing can address issues such as climate change, and lack of access to healthcare, water, and housing.
• Impact investing is considered by some to be a means to reshape capitalism and promote equality and shared prosperity.
• Development finance organizations also use impact investing.
• The U.S. International Development Finance Corporation (IDFC) shows its dedication to initiatives that have a substantial and long-lasting impact in the developing world.
• An impact strategy with priority sectors, strategic priorities, and impact targets was created by the IDFC.
• USAID's Center for Innovation and Impact contends that investors are now focused on measuring investments’ social impact.
• It also said that they are "representing a shift away from the rigid dichotomy of once-perceived tradeoffs between social and financial returns toward a more dynamic and nuanced development finance architecture comprised of diverse sources of capital".
• In 2020, a study The International Finance Corporation found $349 billion in impact investments managed by 36 different development finance institutions (DFIs).
• The same report identified 11 multilateral development banks (MDBs) having $18 billion in intended impact assets.
• It also mentioned 67 additional national development banks (NDBs) and regional development banks managing $1.32 trillion in intended impact assets (Volk 2021).
• Impact investments provide prospects for greater investment.
• They also offer to help communities that are “investment deserts” by drawing interest and resources that are now absent from traditional investors to them.
• The UN has set Sustainable Development Goals (SDGs) with a target date of 2030.
• The UN estimated that reaching the SDGs globally would cost 5–5–5–7 trillion per year between 2015 and 2030.
• Current funding levels translate to an estimated annual investment shortfall of $2.5 trillion.
• Impact investing, is the means for filling the gap.
• For example, Lizz Welch, CEO of iDE, champions investing in female entrepreneurs as the best poverty reduction strategy (SDG 1).
• Women tend to invest more in the health and education of their offspring.
• As compared to businesses run by men, those run by women are more prone to hiring women as employees.
• Welch uses the case of Salima Lungu Nosiku, an entrepreneur in Zambia with an agro-supply business, to make her point.
• Salima has dramatically increased her business, resulting in positive societal effects like job creation, high living standards, and inclusive growth.
• Welch encourages the world to invest in women to help achieve the SDGs and reduce poverty.
• Impact investments include both financial and social or environmental effect to the list of expectations.
• Intentional ambiguities and loopholes that are embedded into the overall idea make it nuanced, more complex than it seems at first.
• These uncertainties explain why impact investing fails to do what is hopeful in theory, in practice.

Differentiating Impact Investing

• Like impact investing, alternative investment strategies i.e. Socially Responsible Investing, Green Investing, Sustainable Finance, and Environmental, Social, and Governance (ESG), have some ambiguity
• Also have some terms of their own that have varied uses, with some distinctions as below.

Socially Responsible Investing (SRI)

• Encompasses choosing or disqualifying investments based on specific ethical criteria, such as the nature of the company.
• Investment decisions for an individual firm or an exchange-traded fund (ETF) or mutual fund that invests only in responsible companies.
• Employs 'screens' of business sectors or individual firms to identify operations, products or services that cause societal harm.
• Alcohol, gambling, and tobacco industries are commonly targeted.
• The concept of avoiding firms that use money to profit at the cost of either humans or the ecological environment.

Green Investing

• It is the alignment of investments based by advancing ecological-friendly business activities and the conservation of resources from nature.
• It can have more targets and restrictions.
• Focuses on array of pollution, waste, water, carbon, biodiversity, pollutants, harmful chemicals, microplastics, and deforestation etc.
• Qualifies on all investments that reduce environmental degradation and helps to restore ecological health by mitigating external factors.

Sustainable Finance

• Adopts a wider perspective to tackling how to allocate capital for consistent, long-term expansion, while accounting for both ecological and community factors.
• Alternatives to ‘unsustainable' disregard to planet's global and local business operations can affect the planet and people.
• Aims to alleviate climate change damage, minimize harm to the planet, and enhance health, security and prosperity of vulnerable communities while supporting long-term growth.
• This approach acknowledges connection of firm to prospects for growth and to social and environmental conditions in which it does business.
• Seeks to the mitigating and/or evading that environmental crises, poor social and conditions generates back to the firm.
• Financial tools/instruments that are commonly used for sustainable finance include Sustainability bonds
• The parent company of Google, Alphabet, completed in 2022 allocation of income of bond ending in 2020.

ESG

• Newest system of investments which has aspirations for other than just financial returns.
• The fact of how the environmental, social, and governance situations can have robust effects on investment risks and financial compensation.
• frameworks and standards are promoted by third-party certifiers, consulting firms, advocates, development finance institutions, and governments.
• The importance and rising focus on climate change and how the adaptation of firms/businesses can accommodate future changes that effect environment.
• It has become the core topics for ESG

Summarized Approaches

• All such techniques are approaches to consciously make improvements through investments to society, whether goals are centered in avoiding negative impact or pushing positive impacts
• It poses a question of why the need for such concept as Impact Investing given all inclusive and extensive choices to inventors as added value

The Distinction Between Traditional and Impact Investing

• The key differences must be intentional. These three traits require an investment process, data analyses, decision-making criteria, and monitoring that differ from what is required to achieve the goals of the other alternative investment approaches.
• It begs the problems how does certain investments qualify as impact investment and how reliably assessed and measured
• In such a scenario It has several Short Caming's in the framework
• It poses an uncertainty of how it differs in less robust and clear framework
• This is due to every investment having a classification as positive impact in some form and way but It’s distinction of actual impact must set the difference
• Adding metrics provide a what qualified on impact invested
• Investments in restaurant chains can be directed/made intentionally with the goal of creating jobs but the quantifiable number to jobs made encountered many measures challenges
• Intentional the Investor may differ but the impact of the Investment could well and identical

Financial Presumptions

• Financial yields have Tradeoff and if not have to make a sacrifice of that built on DNA of investments
• That Question to answer with difficulty.

Impact Investing Data.

• lower investment returns.
• mechanics do not address it happen simultaneously
• Or input or operation to the services their Customers
• is a feature of Investment

Overall Project Risk

• are implicitly risker when lesser to what impact Investments do
• example is peace Bonds where reduce risks and electricity community

General Definitions

• investment is an Investment the structure of the risk and optimized double the value. But, in practices is it done?
• definition has account for other potential impacts what damages it caused in end

Types of Investments

• has to make an account for investors more first commitment
• invest is a mean that Investor Investors are ready with what they do
• Impact Investors dont have more money to increase social Impacts
• It's generally Higher returns when has the additional

Major Frustration

• major people not secure funding development
• there aren't code don't has Number numbers

Defining the Investment Opportunity

• is the assessment and for most to see

Social Impact Metrics

• Is it social or trade off
• If returns were to be forsaken and not assure
• is used to assess how good Impact
• if know how to measure impact