Impact investing has its skeptics, to be sure. But the
growing list of successful investments and initiatives on this
front suggests such critiques may be shortsighted.
During the past five years the coordinated global effort to
develop a standardized marketplace has shifted more attention
to impact investing. The movement to use finance for social and
environmental good reached a new milestone last June when U.K.
Prime Minister David Cameron hosted the Social Impact Investment Forum, a G-8
event. More than 90 major institutions active in impact
investing voiced their support of the G-8s commitment to
advancing the industry.
investors, some of whom have questioned impact
investings viability, have embraced the concept and have
strong returns to show for it. In a January 2013 survey of
nearly 100 institutions with impact investments by J.P. Morgan
and the Global Impact Investing Network (GIIN), 89 percent of
reported that their impact investment portfolios were meeting
or exceeding their financial expectations. The same survey
showed that 65 percent of respondents are targeting market rate
returns competitive with accepted asset-class benchmarks.
How do these supposedly market rate impact investments stack
up? During the past few years, GIIN has tracked several impact
investing funds across a variety of asset classes, sectors and
regions that have performed well when compared with
industry-recognized benchmarks. Impact investments can and do
achieve competitive returns.
For example, a $1.5 billion U.S. bond fund directed at
supporting the creation of low-income housing and community
development was ranked in the top quartile of
Morningstars Intermediate-Term Bond Category for
five-year risk-adjusted returns as of December 31, 2012. The
same year, that fund outperformed its benchmark, the
Barclays U.S. aggregate bond index.
Another example is a $75 million venture capital fund aimed
at spurring economic and environmental development in
Californias Bay Area. The fund has consistently ranked in
the top quartile of the Cambridge Associates list of 2004
vintage funds and outperformed Cambridges U.S. venture
Both these funds and many others in the GIIN
ImpactBase global directory have track records of at
least five years. And as impact investments demonstrate market
rate returns, more investors
have been inspired to explore and allocate to such funds. In
January 2014 ImpactBase reported $17 billion in committed
capital for impact investments across 281 funds and
investors continue to announce new impact investing
allocations and initiatives. In the past year weve seen a
$250 million social impact fund sponsored by Goldman Sachs, a
$500 million affordable housing REIT profiled on the Clinton Global
Initiatives website and the announcement by five U.K.
local authority pension funds of a cooperative plan for a £250 million ($415 million)
initiative to invest in opportunities that help local
communities tackle wider economic issues. UBS and Morgan Stanley have each launched their
own impact investing initiatives.
Many impact investors
accept below-market returns to test new and challenging markets
and to support higher-risk early-stage social enterprises.
Other strategies include credit enhancement that reduces
financial risk for commercial investors,
thereby increasing the pool of capital available for social and
environmental objectives, and financing on terms that best
enables the underlying enterprise to achieve its social
For those investors
with a desire to generate market rate returns in impact
investing, the track record of success is growing, providing a
data-driven counterpoint to skeptics. Together with growing
investor confidence and global collaboration, the realized
market rate returns for many impact investments are testament
to the opportunity of this growing field.
Luther Ragin Jr. is the CEO of New Yorkbased
nonprofit Global Impact Investing Network and former
CIO of the F.B. Heron Foundation.