Impact investments can be as straightforward as banking with a community-based financial institution that helps to expand economic opportunities for low-income stakeholders, or supporting entrepreneurs in the developing world through a micro-finance fund. Some of these types of investment, for example, solar power, have been around for decades.Impact investments can also be incredibly complex, sometimes creating new financial vehicles or new types of arrangements between partners. These pioneering deals—which could include infusing capital into startup social enterprises, for example, or investing in pay-for-success contracts—often require expert advice, especially for newcomers.

Types of Impact Investment

<ol><li>Philanthropy can pave the way for promising investments that don’t yet attract pure investment capital due to higher risk, an unproven track record, or an uncertain return timeline. In this case, philanthropy can provide risk capital, early capital, or patient capital. One example is a loan guarantee allowing a social enterprise to access credit at a favorable rate.</li><li>For over a century, philanthropy has honed one of—if not the—most challenging aspects of impact investing: impact measurement. Philanthropy can coordinate with impact investors to appropriately evaluate impact, which can then be measured along with the desired financial return.</li><li>Philanthropy can help develop, scale and professionalize the impact investing field through education, training, research and infrastructure building.</li></ol>

How Philanthropy helps impact investments

From the US SIF Foundation’s 2016 Report, assets under management that incorporate ESG considerations totaled $ 8.72 trillion—a 33% increase over 2014. These assets now account for more than one out of every five dollars under professional management in the United States.

Impact Investing Market Size 2016

Impact investing has caught the attention of institutional investors, driven by client interest. BlackRock, Goldman Sachs, Bain Capital, and TPG are just a few that have taken significant steps to integrate impact investing into their asset management offerings. Moreover, across the financial industry the number of SRI (socially responsible investing) mutual fund and ETF offerings has grown rapidly over the past few years. MSCI and Morningstar—leading providers of independent investment research—have also released ESG indices and ratings to inform investment decisions.

Institutional Impact Investors

As impact investing gains traction among a wider range of investors, efforts to codify impact measurement have been amplified. A number of relevant frameworks now exist, an example of which is the Impact Reporting and Investment Standards (IRIS) —an early taxonomy providing the foundation for impact measurement. New accounting standards are also in development by the Sustainable Accounting Standards Board (SASB) to track social metrics in public companies.

Measure through IRIS & Sustainable Accounting Standards Board (SASB) 

Mission Related Investments (MRIs): MRIs are risk-adjusted, market-rate investments made as part of a foundation’s endowment and have a positive social impact while contributing to the foundation’s long-term financial stability and growth.Program Related Investments (PRIs): PRIs are IRS-defined below-market rate investments made by private foundations designed to achieve specific program objectives. As opposed to MRIs, PRIs have a legal definition in the U.S. and count as a qualified distribution towards a foundation’s 5% annual payout requirement. The Bill and Melinda Gates Foundation, for example, uses PRIs to complement its traditional grantmaking and to scale social enterprises that serve the poor.

Types of Foundation Imact Investments

To keep pace with these blended corporate aims, hybrid corporate forms have developed. For example, since the organization B Lab began its work in 2006, 33 states have enacted legislation for incorporation as a “benefit corporation,” in which a company prioritizes public benefit over financial performance. In addition, over 2,000 organizations in over 50 countries have taken up a non-legal designation of B Corporation that have been vetted to account for the company’s social purpose.

B Corps adopted now in 33 states and with over 2k companies in 50 countries 

The structure of the transfer of money itself also has a range of possibilities. The investment structure can incorporate cash, private and public debt or equity, real assets, or other innovative instruments—such as pay-for-success contracts. Of these options, the 2017 GIIN Annual Survey shows private debt as the most common investment structure.<a href="about:blank"> </a>

Investment Structures - Pay-for-success more innovative 

Investors Circle, <a href="https://investorscircle.net">investorscircle.net </a> An early-stage impact investor network made up of individual angel investors, professional venture capitalists, foundation trustees and officers and family office representatives.Mission Investors Exchange, <a href="https://missioninvestors.org">missioninvestors.org </a> Network of foundations and mission investing organizations offering workshops, webinars and a library of reports, guides, case studies and investment policy templates – with the goal of sharing tools, ideas and experiences to improve the field

Noteworthy Networks to check 

Toniic, <a href="https://toniic.com">toniic.com </a> An international impact investor network promoting a sustainable global economy and offering peer-to-peer opportunities to share, learn, co-invest – including a searchable directory of impact investments, an impact portfolio tool, and multi-year studies of impact investing portfolios.<a href="https://casefoundation.org/resource/short-guide-impact-investing/">Case Foundation’s Short Guide to Impact Investing </a>

Impact Investing: An Introduction | Rockefeller Philanthropy Advisors

Christian Bausch