Veronica Vecchi and Francesca Casalini
Impact investing is the new buzzword: the concept first proposed by the Rockefeller foundation back into 2007 immediately attracted the interest of civil society, financial institutions and governments worldwide.
In developing countries, impact investing is considered a powerful tool to improve the lives at the so called “bottom of the pyramid” (“BoP”): the poorest population groups, who often have limited or no access to basic products and services such as healthcare, education, clean energy, water, and sanitation. In mature markets like the European ones, impact investing is seen a new paradigm to cope with the economic crisis and the curtailed public budgets and answer to the more and more diversified needs of its citizens.
Also private investors have been increasingly interested in the concept of impact investing, in their search for new investment opportunities to channel the enormous liquidity available. Globally, indeed, private wealth has never been so high: in 2013 total global financial assets grew to $ 225 trillion, tripling the world’s GDP; the wealth of High Net Worth Individuals (HNWIs) hit the historical peak of $ 54.3 trillion in 2015 and 92% of HNWIs consider the social impact important.
Impact investing is also ranking high in the policy agenda of governments and international organizations. In 2013 the G8 established a dedicated taskforce and also the World Economic Forum launched an initiative to shed the light on this new phenomenon. The European Union, through the European Investment Fund (EIF), which is the European Investment Bank Group's specialist risk capital arm, launched the Social Impact Accelerator (SIA) initiative to foster the development of a European market for impact investing. Also global financial institutions, like J.P. Morgan and Credit Suisse have been the main promoters of this new investment approach. In 2008, in the wake of the financial crisis, these organizations, alongside the Rockefeller Foundation, launched the Global Impact Investing Network (GIIN), which in 2017 groups more than 500 members.
However, until now, impact investing is often mixed up with other related concepts: Socially Responsible Investing, Blended Value, Venture Philanthropy, Triple-Bottom Line, and so forth.
This note is intended to introduce the concept of impact investing to newcomers and shed the light on its main features and applications.