Making money, doing good: the growth of impact investment
As the impact investment sector expands, new and improved measurement is helping to bring the practice into the financial mainstream.
Impact investors aim to create two things: financial returns and social or environmental benefits.
It may sound like an optimistic practice, but a survey from the Global Impact Investing Network (GIIN), released this year, paints a bright picture for the sector: it found the market is growing, diverse and investors are meeting their financial expectations.
The report also found that increased efforts to track and measure impact are bolstering investor confidence, and governments are increasingly becoming involved in the space.
From ethics to impact
For the last nine years, Bessi Graham has been helping to build the impact investment marketplace in Australia.
As a co-founder of The Difference Incubator and Benefit Capital, her focus has been on ensuring organisations such as social enterprises and not-for-profits, who may be used to dealing with philanthropic money, also have the infrastructure in place to be able to accept investment capital.
While impact investment has been gaining increased attention over the last decade, Bessi says the practice comes from a long lineage of ethical finance.
“It isn’t just an idea or just a new fad, it’s built on a progression from decades of track record of ethical investment and very conscious negative and positive screening of what we [do with our money in the world],” she says.
Whereas ethical investors elect where to put their money – for example negatively screening to avoid investing in tobacco, or positively screening to include renewable energy – impact investment takes things a step further.
“Impact investment is moving along the spectrum.” Bessi says. In addition to intention, measurability is also considered.
Socially responsible cafés and life-saving tech
Since 2010, Melbourne-based hospitality organisation STREAT has trained and supported over 900 disadvantaged young people.
Starting with a single coffee cart, the social enterprise has ballooned to include multiple cafes, a coffee roasting arm, bakery and catering service.
While CEO of The Difference Incubator, Bessi helped to get the financial ball rolling for the organisation: “We did their first capital raise and bought the first cafés and brought the first impact investors in on STREAT’S first investment opportunity.”
She says the success and long-term sustainability of the organisation has depended on diverse financing strategies.
“In order for them to build a model that can really be committed to driving social change around working with young people that are dealing with homelessness, they have had to look at multiple forms of capital,” she says.
They’ve had philanthropic money, they’ve had debt finance, they’ve had equity capital. So there have been lots of lessons and some aspects where investors haven’t made money on certain components and others where they have.
A more recent project has taken Bessi to Papua New Guinea. Currently in pilot mode, the organisation Refer Tech is digitising patient records, cutting down on critical waiting times, and saving lives as a result.
“They currently have a clinic with 400 patients a day coming through, and only one doctor,” Bessi says. “Everything is done manually, written by hand in books. Through using really cheap and easily accessible technology, we’ve been able to streamline and digitise the way in which patients are interacting with the clinic.”
It is still early days for the startup, which involves a small-scale investment in the realm of $100,000, but there are substantial expansion plans: “It’s something that’s looking like it’s already going to be scaled up into multiple countries, and big international funders will be engaging with it, because it will create huge savings for them.”
Bessi says it demonstrates the innovative possibility of impact investment: “When you engage really effectively with money and with attempting to achieve a social purpose, you can actually design brand new approaches to things that can be saving people’s lives, massively improving health outcomes, but also create a real commercial opportunity at the same time.”
More measurement: the future of impact investment
Measuring the real-world, lasting impact of investments has been a key challenge for the sector so far, but recent developments are helping to build best-practice guidelines and increase accountability.
Groups such as the Impact Management Project, which includes over 2000 practitioners and organisations, are sharing knowledge and working to establish new frameworks.
As measurability is strengthened, governments are becoming increasingly involved in the space. In the UK, the government-backed Impact Investing Institute was announced in June, which aims to make the practice accessible to more everyday lenders.
Bessi says these developments point to an exciting future: “I think we’re going to see real change coming over the next ten to fifteen-year period as you see more conscious, focused effort around not just hoping we’re addressing challenges in the world, but actually having ways to track and measure and communicate — and correct course if we’re not improving on those really important issues that we’re facing.”
As founder and facilitator of the Foundations of Impact Investing, a short course delivered at the University of Melbourne, Bessi shares learnings derived from her decades of involvement in ethical finance.
The course examines detailed case studies, including the story of STREAT, and provides expert insight into the impact investment landscape.
Bessi describes it as ideal for those working in government or in a senior-level at a foundation or charity, and those with financial backgrounds looking to build more knowledge and confidence in the area of impact investment.
In her time in the sector, Bessi has witnessed a lot of change. She says there has never been a better time to become more involved: “Now that the market is getting a little bit more mature and established and getting some traction and growth, everything isn’t new and for the first time — we can start to have some really robust conversations.”