By Thomas Ansell
Whilst the idea of socially-responsible investing has its roots in religious thought, the idea of investing for social impact has its modern Western history in the anti-Apartheid movement of the later 20th century, and the creation of the UN Principles for Responsible Investment in 2006. Essentially, whilst ‘traditional’ investing focusses on maximising investor returns, ‘Impact Investing’ takes a more holistic approach and aims to invest to create social change, whilst offering a more sustainable form of profit.
As covered in our profile of Floyd Davis Finance, there is a significant amount of capital now earmarked for ‘Impact Investing’, and the Floyd Davis team are determined to link it up with worthy projects and companies. So, who better to pose the question to: ‘is Impact Investing the future?’
An overall social shift
One of the most important drivers of a shift towards ‘Impact Investing’ is to be found in a general societal shift. As more and more people become alive to the global challenges posed by climate change and human problems such as inequality, exploitative working practices, or destructive corporate practice so too do more and more fund and investment managers.
“Lots of financial organisations are taking a longer-term view and a socially responsible approach”, says Bernarda Coello, “with funds specifically set aside for climate-friendly projects, for example.”
Added to this is pressure from stakeholders. Floyd Davis has a history of working with pension funds, says Ronald Huisman, “and it’s not just a societal shift, it’s also pressure from the people who entrust their money to these funds.”
Looking farther afield
Whilst Impact Investing often focuses on issues created by climate change, there’s also a move towards using capital to support enterprises in the global south that are innovating to tackle social problems that go beyond that, says Coello. “There’s new relationships building between the private sector and the development sector, and this is allied to a local capacity in many places that may not have received attention in the past.”
Indeed, she adds, Floyd Davis is working with innovation and impact hubs in regions such as South America that may not have previously been considered by financial organisations.
But what guides Impact Investing? Can Impact be measured?
Just as with legacy investment practices, there isn’t a global set of rules to govern Impact Investing, nor is there a standardised way of measuring or even conceptualise ‘Impact’. There are various ways to structure Impact-led strategies, though, for example by using the UN’s Sustainable Development Goals (as Floyd Davis Finance looks to to), or by utilising the 6 Principles for Responsible Investment set out by the UNPRI.
Business Schools around the world are also now turning to look at measuring impact within investing, whilst some financial institutes themselves are coming up with metrics including the Impact Multiplier for Money (IMM).
Utilising their own deep knowledge of working in and around sustainable and impact investing, Floyd Davis team are also working on their own framework to help measure and guide investment.
If you’d like to reach out to Floyd Davis Finance to speak about Impact Investing, why not contact Ronald Huisman and Bernarda Coello via The Hague Humanity Hub’s Slack?