From corporate CEOs to institutional investors, a more holistic view of stakeholder value is steadily taking hold around the world.
Investors are increasingly looking for opportunities to achieve social and environmental impact alongside financial returns and contribute to the Sustainable Development Goals (SDGs). Without a doubt, this bodes well for the growth of the impact investing industry.
The companies that continually strive to contribute to the pressing challenges of development are the ones that are guaranteed their existence in the future, their longevity. This is exactly what the field of impact investing is all about, and more actors are needed in this field to collectively fight against climate change, social inequalities and the loss of natural biodiversity.
By definition, impact investing is company spending with the goal of contributing a measurable positive social or environmental impact, along with financial performance.
Investing with an impact lens also helps drive income by accessing previously under-capitalized markets. It drives operational efficiencies, and by engaging suppliers at the base of the pyramid, you can stabilize the supply chain.
The International Finance Corporation (IFC) estimates that the market size for the assets of private impact investors will be slightly over $2 trillion in 2019, almost the total GDP of Africa.
In light of the Covid-19 pandemic, impact investing could become more relevant and work against the tightening of liquidity conditions, widespread economic disruption, risk aversion, and benefit from portfolio rebalancing. To benefit from these factors, impact investors must take advantage of innovative resilience strategies.
However, as more people and investors are becoming aware of sustainability practices and increasingly entering the impact investing space, little attention has been paid to measuring and tracking impact.
Despite growth in the impact investing market in recent years, the lack of a common standard for tracking impact investing has slowed progress. After all, progress is only possible when a project and its impacts can be measured.
Therefore, there is an urgent need to develop industry standards and tools that investors can use to track their progress. Some global players have recently created such standards, but much more ground remains to be discovered on this front. These operating principles for impact management provide market standards for how to manage investments with the goal of achieving positive impact along with financial returns.
Studies indicate that financial inclusion leads as the sector that has attracted the most impact investments in sub-Saharan Africa, followed by green technology, while agribusiness ranks third in providing a glimpse into the interests of the investors. This is followed by health, water, education and housing, in that order.
There are several ways in which public and private stakeholders are making impact investments alike. In addition to internally generated cash and lines of credit from commercial banks and development finance institutions, bonds are another effective financing vehicle: green, social and sustainability bonds. These bonds allow issuers to raise funds specifically for projects that enable positive change for society and the environment. They appeal to investors as a simple instrument for integrating environmental, social and governance results in fixed income portfolios.
Impact investing using green, social and sustainability (GSS) bonds is possible if an investor purchases the bonds with the intention of generating a positive impact, and the issuer measures and reports on the impact that is directly related to the funds raised with the bonus. The Green Bond Principles (GBP), a widely accepted set of guidelines for green bond transparency, require issuers to disclose which projects have benefited, the amounts allocated and their expected impact, and recommend reporting on the environmental impact of the bonds. Financial projects.
However, a 2019 study by the Climate Bonds Initiative on post-issuance reporting shows that only 38 percent of green bonds report the use of post-issuance income, and one in five green bonds does not. Reports on environmental impact. This requires stronger transparency commitments through timely reporting, whether through sustainability reports, brochures or other avenues.
This is the time when impact investing can show its full potential. By focusing on impact and financial returns, impact investors can make decisions that not only benefit their portfolios, but also benefit their invested companies.