5 (Free) Must-Reads to Understand Impact Investing
This post was adapted from a DevEx Impact article, written by Ashtin Carter.
So you’re considering switching to impact investing after a few years in finance, or you’re getting your MBA and exploring career opportunities. Scan business trade publications, Twitter, or your local business school, and you’ll quickly learn that impact investing has exploded onto the finance scene. However, there’s a lot to understand for those breaking into the field as investors and as financial advisors.
These five must-reads answer the “what,” “why,” and “how” of impact investing, curated and summarized by Ashtin Carter, an Analyst at the USAID Global Development Lab's Center for Transformational Partnerships (CTP).
1. “Status of the Social Impact Investing Market: A Primer”
By Dr. Maximilian Martin
In addition to being a great primer and providing definitions, approaches, stakeholder roles, and the opportunities and challenges of impact investing, this short read also contextualizes the field into three mega-trends, which Ashtin summarizes nicely:
Massive pent-up demand at the bottom of the pyramid: There is still a major opportunity to tap into $5 trillion in latent bottom-of-the-pyramid demand by using innovative, market-based solutions.
The need for radical resource efficiency and green growth: A projected world population of 9 billion by 2050, combined with the projected $500 billion per year of funding needed to reduce carbon and limit global warming — which we currently fall short of by about half — leaves a sizable investment gap that offers opportunities in energy and natural resource efficiency.
New approaches to provision of public services: Social impact bonds, a public-private partnership model pioneered by the United Kingdom, is a new social impact investment mechanism where private investors finance services upfront, and the government guarantees a financial return based on the achieved outcomes.
2. “From Ideas to Practice, Pilots to Strategy: Practical Solutions and Actionable Insights on How to Do Impact Investing”
By Michael Drexler & Abigail Noble (World Economic Forum)
This 60-page report is a curated collection of 15 short, action-oriented articles written by experienced impact investment practitioners. Primarily written for potential new impact investors, active investors, intermediaries, and policymakers, the articles highlight lessons learned and showcase best practices, organizational structures, and innovative instruments that have all been successfully implemented in the field.
3. “Evolution of an Impact Portfolio: From Implementation to Results”
By Justina Lai, Will Morgan, Joshua Newman, Raul Pomares (Sonsen Capital)
This report details the portfolio performance of KL Felicitas Foundation, an organization that decided back n 2004 to eventually allocate 100% percent of its capital to impact investments. In addition to being compelling, this is one of the first comprehensive analyses of a portfolio-wide approach to impact investing.
As Ashtin notes, “The success of the portfolio is based on a systematic approach to impact investing: a balance between financial discipline and portfolio diversification from a range of investment opportunities found across the “Impact Investing Spectrum.”
4. “Impact Investing 2.0: The Way Forward”
By Pacific Community Ventures, Impact Assets, and Duke’s Center for the Advancement of Social Entrepreneurship
This report features lessons learned from twelve successful impact investment funds, and, most helpful to me, outlines four key elements of successful impact investing:
Policy symbiosis: Despite the widely held belief that a successful capital market is one with little government involvement, the 12 funds demonstrate the opposite: “Impact investment is grounded in deep cross-sector partnership that benefits from the government’s engagement.”
Catalytic investments — such as grants, guarantees or philanthropic capital — have proven to be transformative to the 12 funds by triggering billions of dollars of further investments that may not have otherwise been available or possible.
Multilingual leadership: Successful fund leadership must be experienced in multiple areas, for instance finance/business, policy and impact/philanthropy, in order to successfully engage with a diverse range of stakeholders.
Mission first and last: This section challenges the dichotomous “financial-first” or “impact-first” approach to investing, and instead suggests focusing on establishing funds with a clearly embedded strategy and maintaining accountability for sticking to the intended financial and social objectives.
5. “Priming the Pump: The Case for a Sector-Based Approach to Impact Investing”
By Matt Bannick and Paula Goldman (Omidyar Network)
The Omidyar Network authors make the case that impact investors need to move away from a focus on individual social enterprises and toward financing the creation and scaling of entire sectors. This won’t be easy and requires an evaluation of social impact not only at the individual level but also at the sector level. This report is the first in a six-part series on impact investing.
Read the full list on DevEx Impact.
