Markets In Action

Mixing Money and Meaning: The New Social Capital

Impact investments — which are basically defined as any business activity for the greater good — are an area of emerging interest in the capital markets.

 

Many investors in the sector see market-rate returns on projects in both developed and emerging markets, according to the Global Impact Investing Network (GIIN). Over half of the impact investors surveyed by J.P. Morgan and GIIN in early 2014 reported “competitive, market rated returns.”

 

Investors are putting their money behind projects that will have a significant social or environmental return in addition to a financial one. An example is the so-called “blue market,” in which investors seek to participate in a sustainable ocean economy by backing activities such as environmentally friendly fishing and construction programs. These investors are using wealth to invest in businesses that are infused with a component of social purpose.

 

“As the pool of impact investors grows, their investments will make it easier for entrepreneurs with demonstrated track records to tap into a far bigger source of funding: a portion of the trillions of dollars of mainstream investment funds in global capital markets. As investors, ranging from individuals to pension funds, seek to embed their values in the allocation of their capital, impact investing is a way of tapping into this immense financial resource,” according to Judith Rodin, the president of the Rockefeller Foundation, in The Power of Impact Investing.

 

Growing Emphasis on Impact Investing

 

Impact investing has grown significantly over the past several years. This is demonstrated by a rise in conferences, organizations and funds that have emerged to support activity in the space. Organizations like the Global Impact Investing Network, a nonprofit dedicated to growing the impact investing sector, have contributed to this growth.

 

According to a survey this year by J.P. Morgan and the Global Impact Investing Network, respondents expect to commit $12.7 billion in capital allocations for impact investments — up 19 percent from 2013.

 

As impact investing continues to expand, investors stand to benefit from leaving a legacy.

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