Society and the investor can both benefit as a result of impact investing

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Standard Bank presents Investing in the Future: Acting Now and Acting Well – a podcast series dedicated to unpacking the current state of ESG in South Africa. 702’s Arabile Gumede hosts expert guests to discuss the shifts needed to make a fundamental change that can achieve a resilient and regenerative economy.

In this episode, Aunnie Patton Power, associate fellow at Oxford University explains what Impact Investing is and what the benefits are for the investor and for society at large.

Click below to listen to the conversation while you read:

In the current world we live in, issues like climate change and other social responsibilities like equity and diversity are top of mind for businesses and investors, so a discussion around impact investing could not be more pertinent.

Impact investing is described as an investment strategy, made with the intention of having a measurable, long-lasting and far reaching, positive environmental and social impact, alongside financial gains.

It goes without saying that any investor will want to make a profitable return on their investment, but can they bank on seeing significant growth in their outlay through impact investing?

Is impact investing profitable or just morally the right thing to do?

Any financial investment has its risks, and impact investing is no different.

According to Power, ‘impact investing is done by governments, private equity investors, debt investors, individuals and development institutions’, with a wide range of options for your investment.

Power says there are companies which look to make substantial returns on their investments, by accessing spaces like EdTech that are creating large opportunities and fast growth.

She adds that on the flipside, there are investors who choose not to market rate returns.

There are choices we can make. Not all problems can be solved with market-rate capital. There are some choices that we do need to make with some trade-offs… Purely by trying to do good with your capital, does not mean you can not do well.

Aunnie Patton Power, associate fellow at Oxford University

You can make market-rate returns with impact investing, but it’s a strategy. Just like any strategy, you can also lose money, but you can make purposeful trade-offs.

Aunnie Patton Power, associate fellow at Oxford University

Who can get involved in impact investing?

‘You can think of it from an investment perspective, so any investment professional or any individual can be an impact investors’, says Powers.

Powers used her own example of being an impact investor, by co-founding Dazzle Angels, a female focused fund, that is led and funded by experienced business women.

Dazzle Angels is made up of twenty investors who clubbed together their capital, and now invest in female founded companies.

That’s something you can do as an individual, you can get your friends together, put a bit of cash together and do that.

Aunnie Patton Power, associate fellow at Oxford University

Where are investors putting their money?

There’s been significant investment made in the climate change space in recent times, but Aunnie Patton Power, associate fellow at Oxford University says other sectors and industries are also beginning to profit from impact investments.

Other areas are certainly catching up. Things like affordable housing, healthcare, health-tech and EdTech…huge in the last 18 months, because things are going online, there’s lots of opportunity to invest in Africa right now.

Aunnie Patton Power, associate fellow at Oxford University

Fintech, Health-tech and EdTech. That’s where the money is going into, because that’s a lot of opportunity and huge untapped markets. We’re starting to see some of these startups really get to the type of scale and start to get some of the exits and the investment capital from overseas.

Aunnie Patton Power, associate fellow at Oxford University

What are the key elements of impact investing?

The obvious goal of impact investing is to reduce the negative consequences that business has on society and the environment.

To ensure companies stick to those targets, Power says there is a set of principles that over a hundred of the largest impact investors from around the world have signed up to, called the Operating Principles for Impact Management.

These principles provide guidelines for how deals are sourced, how funds are setup, how portfolios are managed and how to exit investments, with an independent verification done on all those guidelines.

It’s not about saying, finance here, impact here. It’s looking at where do they overlap. Where can we find ways in which addressing markets, and addressing them well and treating customers appropriately actually leads to financial returns.

Aunnie Patton Power, associate fellow at Oxford University

How are the social benefits of impact investing measured?

‘The measurement of environmental and social impact is not quite standardised’, says Power. She does however add that with the use of new-age technology, it’s become a lot easier to measure the positive influences of impact investing.

Power says off-grid energy, like solar installation in homes can now be monitored with the use of technology, giving a clearer picture of how people are benefiting from renewable energy.

We can measure the number of megawatts that are added. We can measure the number of people that have access for the first time. We can use cellphone surveys to ask them how that electricity has changed their life.

Aunnie Patton Power, associate fellow at Oxford University

We can look at data around the spending in those specific areas, or by those individuals for income, to see how they’re using that electricity to be able to better their lives…using drones, satellite images to be able to make sure they’re installed, pings to the off-grid energy providers. There are lots of ways we can measure things, beyond just ‘did this make a return to the investor’.

Aunnie Patton Power, associate fellow at Oxford University

The goal for investors and businesses alike should be to ensure that their investments are sustainable by the year 2030 for the latest, with the aim of getting the market to move in conjunction with what impact investing is trying to achieve, she concludes.

It can’t just be some of us moving towards this future, we have to be all in. For more information, visit Standard Bank Corporate and Investment Banking.