Point of impact: How to maximise returns from impact investing

4 Mar 22

An expert explains impact investing and how public sector investors can use it to achieve social goals – and healthy returns.

What is impact investing and how does it differ from other types of investing?

Impact investing is no different to traditional investing in that people are seeking financial returns. But for a very large number of beneficiaries and owners of capital, financial returns are not enough.

During the past few years there has been substantial growth in the number of people who are expecting their capital to bring not only a financial return but also real-world benefits for the environment and society.

Impact investing sees an investor targeting a particular set of positive environmental or social outcomes. In their investment process, they manage and actively monitor progress towards achieving those goals and manage their portfolio with that in mind.

What asset classes are suitable for impact investing?

In principle, you should be able to apply an impact investment lens to any asset class.

I think an important question for an investor to ask is ‘What am I doing that helps accelerate the ability of those companies to be impactful?’.

In some asset classes, it is a relatively obvious answer, because an investment is providing new capital. In other asset classes, like listed equities, it becomes more complicated to attribute changes to a single investor, because, typically, they do not provide new capital directly, and the means available to accelerate impact usually relies on collective action.

But, in principle, we think it is a lens that you can apply across asset classes, and the institutional investors we have been working with are starting to try to do that.

Do public authorities engaging in impact investments need to accept lower rates of return?

There was a time when people thought there was a trade-off between financial return and impact.

Now we live in a world where people expect both. For some investments, pursuing a specific impact goal might require making longer-term bets, or choosing to be an early investor in something and taking on greater risk.

You might have a greater risk appetite, or you might not. However, not everybody is willing to take on risk.

That is why we say impact investing is about the investment strategy, focused on both impact and financial objects, in addition to a full spectrum of returns (market rate or otherwise), and then consciously managing towards the delivery of both of those goals.

How has Covid-19 changed the landscape for impact investment?

I think it has accelerated the agenda somewhat.

The pandemic has helped make visible some of the fragility in different segments of the economy and our societies.

The investors we work with have been expressing a much greater appreciation of the importance of their investment choices in terms of the world that those decisions create and the world in which we live.

There is much more attention and interest in understanding how investment strategies relate to that question.

How do public bodies measure the effect of their impact investments?

There are increasingly detailed ways of measuring impacts.

The trajectory of our work on developing tools with the investment community has been focused on trying to define what you can measure or what is worth measuring and why.

Our tools help to define standardised information that allows investors to evaluate investments in relation to each other.

It is no different from having accounting standards that create consistency about financial information and enable access.

You still have to do the analysis and the comparisons to decide which investment is most appropriate for you.

There are complexities to working in this way, but it is doable, and we are demonstrating how it can be done.

  • Sean Gilbert

    is director of membership and capital mobilisation at the Global Impact Investing Network 

Did you enjoy this article?

Related articles

Have your say


CIPFA latest

Most popular

Most commented

Events & webinars