What are impact investments?
- impact investments
- Noun: Impact investments are investments made with the intention to generate positive, measurable social and/or 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, depending on investors' strategic goals.
The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare and education.
What are the elements of impact investing?
Note: On April 3, 2019, the GIIN published thecore characteristics of impact investing, which complement this definition and aim to provide further clarity about how to approach impact investing.
The practice of impact investing is defined by the following elements:
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Intentionality
An investor’s intention to have a positive social and/or environmental impact through investments is essential to impact investing.
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Investment with return expectations
Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
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Range of return expectations and asset classes
Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital and private equity.
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Impact measurement
A hallmark of impact investing is the commitment of the investor to measure and report the social and/or environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.
Investors’ approaches to impact measurement will vary based on their objectives and capacities. Measurement choices usually reflect investor goals and investor intention. In general, best practices for impact investing include:
- Establishing and stating social and/or environmental objectives to relevant stakeholders
- Setting performance metrics and targets related to these objectives using standardized metrics wherever possible
- Monitoring and managing the performance of investees against these targets
- Reporting on social and/or environmental performance to relevant stakeholders
Learn more about the Core Characteristics of Impact Investing
Why impact investing?
Impact investing challenges the long-held views that social and/or environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns.
The impact investing market offers diverse and viable opportunities for investors to advance social and/or environmental solutions through investments that also produce financial returns.
Many types of investors are entering the growing impact investing market. Here are a few common investor motivations:
- Banks, pension funds, financial advisors andwealth managerscan provide client investment opportunities to both individuals and institutions with an interest in general or specific social and/or environmental causes.
- Institutionalandfamily foundationscan leverage significantly greater assetsto advance their core social and/or environmental goals, while maintaining or growing their overall endowment.
- Government investorsanddevelopment finance institutionscan provide proof of financial viability for private-sector investors while targeting specific social and/or environmental goals.
Who is making impact investments?
Impact investing has attracted a wide variety of investors, both individual and institutional.
- Fund managers
- Development finance institutions
- Diversified financial institutions and banks
- Private foundations
- Pension funds and insurance companies
- Family offices
- Individual investors
- Non-governmental organizations
- Religious institutions
- Corporates
GIIN Investors’ Council
The GIIN Investors’ Council, a leadership group for active large-scale impact investors, are among the leading institutional impact investors globally.
View Investors' Council members
How do impact investments perform financially?
Impact investors have diverse financial return expectations. Some intentionally invest for below-market-rate returns, in line with their strategic objectives. Others pursue market-competitive and market-beating returns, sometimes required by fiduciary responsibility. Most investors surveyed in theGIIN's 2023 Annual Impact Investor Surveypursue competitive, market-rate returns.
Respondents also report that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and/or environmental impact and financial return, in investments spanning emerging markets, developed markets and the market as a whole.
Although very few investors report significant risk events in their impact investing portfolios, business model execution and management is by far the most often cited contributor to risk.
Impact Investing Decision-making: Insights on Financial Performance
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What you need to know about impact investing
Impact Investing Decision-making: Insights on Financial Performanceuncovers insights into financial performance and explores the increasing sophistication with which impact investors are approaching decision-making. Specifically, it finds that impact investors are applying a multi-dimensional approach to decision-making, considering impact objectives and impact risks alongside traditional factors such as financial return, financial risk, resource capacity, and liquidity constraints. Experienced impact investors exercise this dynamic approach to assess how they can most efficiently achieve their optimal impact and financial performance. This dynamic decision-making highlights growing maturation within the industry as impact investors are becoming more sophisticated in their approaches to performance management and capital allocation.
Drawing on data from six of the industry’s existing financial performance studies, this report also offers a synthesis of impact investment financial performance and additionally analyzes the GIIN’s2020 Annual Impact Investor Surveyresponses of 161 impact investors seeking risk-adjusted, market-rate returns. This report also highlights practical examples of leading impact investors, including: Anthos Fund & Asset Management, IDP Foundation, Inc., Incofin Investment Management, UBS Global Wealth Management & UBS Optimus Foundation, and Vox Capital, offering an inside look at how various facets influence their decisions on capital allocation and performance management.
The report confirms earlier findings from the GIIN’s research around financial performance of private debt, private equity, and real assets and expands on this research to focus on various facets of impact investment performance, including risk, financial return, and impact. Download the report below:
View Report
What are some global examples of impact investing?
The impact investing industry is full of success stories: stories about impact investors using the power of their capital differently, stories about entrepreneurs with exciting new ideas and stories about the end consumers who benefit from fresh solutions. All three of these perspectives are woven together in these impact investing success stories:
- Acumen and Everytable: Bringing Good Health into Reach
- LeapFrog and Bima: Reaching the Unreachable
- Patamar Capital and Kinara Capital: Transforming Lives, Livelihoods, and Local Economies
Plus, read these stories to explore how impact investing is improving the lives ofwomen in Bolivia, thepeople and environment of Mongoliaandbilingual communities the United States.
Click through the investment profiles below to view impact investing examples from the investor perspective:
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Dr. Consulta | LGT Impact Ventures
LGT Impact Ventures invests in purpose-driven companies that have scalable business models and provide disadvantaged people with access to essential services, products and livelihood opportunities in growth markets. Dr. Consulta provides high-quality, low-cost specialty healthcare and diagnostic services to Brazil’s low- to middle-income population. LGT Impact Ventures’ investment in Dr. Consulta has been used to expand the clinic network from one clinic to 10 clinics.
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The Savannah Fruits Company | Root Capital
Root Capital is a nonprofit financial institution that provides finance to agricultural businesses in Africa and Latin America. The Savannah Fruits Company is a Ghanaian company that produces shea butter for export and improves livelihoods for rural women by providing a stable, well-paying market outlet for raw shea nuts. Root Capital’s trade finance loans remove cash flow barriers and allow the company to source the butter in larger volumes, enabling the business to grow, incorporate more women suppliers and pay their suppliers a premium over the market price.
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Craft3 | Calvert Foundation
Calvert Foundation invests to increase the flow of capital into disadvantaged communities. Craft3 is a nonprofit, non-bank community development financial institution with a mission to strengthen economic, ecological and family resilience in Pacific Northwest communities of the United States. Calvert Foundation's $2 million USD fixed-rate term loan provided capital to Craft3's revolving loan fund, a vehicle which lends to enterprises and individuals making an impact in the community within its target geography.
View more Case Studies
How big is the impact investing market?
The GIIN estimates the size of the worldwide impact investing market at $1.164 trillion USD, marking the first time that the organization’s widely-cited estimate has topped the $1 trillion USD mark. The figure, which is the central finding of the GIIN’s 2022: Sizing the Impact Investing Marketreport, reflects an increasingly comprehensive measurement of impact assets under management globally.
The report, which was produced with the financial support ofNuveen,also spotlights two areas of development in the market that are becoming increasingly prevalent: green bonds and corporate impact investing.
What is the current state of the impact investing market?
While some investors have been making impact investments for decades, recently there has emerged a new collaborative international effort to accelerate the development of a high- functioning market that supports impact investing. While this market is still relatively new, investors are optimistic overall about its development and expect increased scale and efficiency in the future.
Impact investors generally recognize broad progress across key indicators of market growth...
... but also acknowledge that some challenges remain.
Where can I go for more information?
The GIIN builds critical market infrastructure and supports activities, education, and research that help accelerate the development of the impact investing field. Be sure to check out the following resources:
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GIIN Membership
Tap into the leading network of like-minded investors and organizations interested in deepening their engagement with the impact investing market.
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IRIS
IRIS+ is the GIIN's catalog of generally-accepted performance metrics.
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Research
The Research Center houses the latest information about market activities and trends, performance, practice, and more.
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Faith-Based Investors Hub
The Faith-Based Investing Hub provides a space for faith-based investors and their service providers supporting faith-based investors to engage in learning, leading, and collaboration.
