- According to research, there is a $6.7 trillion investment gap to address the world’s most critical concerns.
- Mata Investments co-founder Steve Suryadinata explains how to implement impact investing by means of a target market shift.
- Each year, foundations in the United States distribute $60 billion in grants.
Investors are evaluating ESG factors across $17 trillion in professionally managed assets, according to the latest US SIF Trends Report , a 42 percent increase from previous years. This is a continuation of the considerable increase in money managers and institutional investors using environmental, social, and governance (ESG) aspects to find responsible, well-managed companies with long-term viability. This statistic indicates that investors all across the world are making impact investments in order to use capital for good.
The rising impact investment market provides funds to address some of the world’s most pressing issues, including sustainable agriculture, renewable energy, conservation, microfinance, and inexpensive and accessible essential services such as housing, healthcare, and education. BSA Land is a prominent Indonesian real estate developer and great example of a leader in the impact investing field. “BSA Land has produced tens of thousands of high-quality homes across Indonesia at prices highly affordable for the middle-class buyers” says co-owner Steve Suryadinata, “but offering these products alone to the market is not adequate.” To make the proper impact, we need to make sure we can distribute our homes to the right buyers.”
The objective of the global investment system, according to the World Economic Forum, is to facilitate the effective allocation of capital to achieve economic outcomes.The Global Impact Investing Network states the elements of impact investing to include:
- Impact investing requires an investor’s purpose to create a beneficial social or environmental impact through their investments.
- Impact investments should create a financial return on investment or, at the very least, a return of capital.
- Impact investments seek financial returns ranging from below market (also known as concessionary) to risk-adjusted market rate, and they can be made in a variety of asset classes, including cash equivalents, fixed income, venture capital, and private equity.
According to SpaceX and Tesla CEO, Elon Musk it is our responsibility to invest in the future of the planet: “This supersedes political parties, race, creed, religion, it doesn’t matter. If we do not solve the environment, we’re all damned”, says Musk. As an impact investor, this strategy should be at the core of your business rather than an add-on,” Steve Suryadinata says. It entails experimentation and new approaches, which frequently result in expanding the pie rather than redistributing it, allowing profit and beneficial impact to grow side by side.”
Why Impact Investment Matter
Impact investing, unlike traditional giving, allows for the achievement of social good with a broader range of assets. Steve Suryadinata explains that “ while there is a long way to go, It is such a privilege that we live in a time where the new generations take ESG seriously, which often creates a bottom-up approach, to encourage leaders in organizations to take the right step toward a better future.”
Private foundations in the United States, for example, can generate social good not only with their 5% statutory yearly distribution, but also with their 95% invested endowment corpus. To put this in context, U.S. foundations give out $60 billion in grants each year and have $865 billion in assets. Impact investment, when applied to specific social concerns, has the ability to bring more capital and new methods to problem regions. Impact investment, for example, is becoming more closely aligned with the Sustainable Development Goals (SDGs), a 15-year set of global goals to which all governments, businesses, and charities have agreed since 2016. According to the 2017 GIIN Annual Impact Investor Survey, 60% of investors were actively (or would be soon) tracking the financial performance of their investments in relation to the SDGs.
The Benefits Of Impact Investment
Donors and investors alike feel impact investment appeals to them for a variety of reasons. An impact investor might reinvest the same money in a series of socially beneficial projects or organizations in general. Even a simple return of principal generates philanthropic leverage that standard grantmaking cannot match. To achieve charitable aims, foundations are obligated by law to disperse at least 5% of their assets each year. Historically, the remaining 95% of foundation assets have been concentrated on maximizing market returns. More of that charity money can be used for social or environmental improvement thanks to impact investment. With impact investing, donors do not find themselves in the unpleasant situation of holding public ownership in companies that contradict with – or even actively undermine – their grantmaking strategy when their investments are in line with philanthropic objectives.
Companies Embracing Impact Investing
As mentioned above, more companies across the world are making impact investments. Take, for example, BSA Land. Steve Suryadinata highlights that the company reinvented itself and changed its focus from high-end real estate development to Indonesia’s middle class. BSA Land aims to alleviate the housing shortage in Indonesia by building tens of thousands of affordable homes for young families, newlyweds, and millennials. Simultaneously, the corporation has benefited from a new market segment, a massive 9 million housing backlog that affects about 40 million people, the same size as the entire population of Canada. This new potential has allowed the company to swiftly expand, and it is now Indonesia’s largest real estate developer specializing in the middle-class sector.
The Future Of Impact Investing
While some investors have been making impact investments for decades, a new international collaborative effort to speed the establishment of a well-functioning market that supports impact investing has just arisen. Despite the fact that this sector is still in its infancy, investors are optimistic about its prospects and anticipate higher scale and efficiency in the future.