We live in a time when paradigms are colliding. Old conceptions from an extractive economy which have been accepted for decades are being challenged by new ideas that are planted in the soil of a regenerative economy. One outworking of this is the growth of “Impact Investing”.
Traditionally, the primary driver when looking at an investment has been monetary returns for the investor. “You can pay a 9% return on investment? Well, that is not as high as the 11% I have on offer here – so you know where I am going.” However, such an outlook is limited and narrow because it is only focussed on financial returns.
Impact investing offers a different approach. The Global Impact Investing Network provides the following definition: “Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”
So the alternative presented by impact investing is that there are other considerations that need to be thought about, such as:
- What does the business actually do – is it an extractive business which is contributing to degradation of the planet? Coal fired power station, anyone? Sugary drinks? Tobacco?
- Who does the business employ – is the business model built on the premise that there is exploitation in how cheaply it can produce whatever it makes, either onshore or offshore?
- What other outcomes are there – perhaps social, cultural, environmental or other factors will be impacted by the business.
The key is that there will be some positive impact through the investment, while still generating return for the investor. It’s about thinking a bit longer before you decide what to invest in.
All this is increasingly relevant and growing – the Global Impact Investing Network did a survey and reported US $114 billion invested by the 208 respondents (large funds) in impact investments. They state regarding this that, “impact investing challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns.”
Locally, in New Zealand an Impact Investing Network was set up last year and they provide resources and information. More than $8 million was raised by one paradigm-shifting New Zealand fund (the Impact Enterprise Fund) which is investing into social enterprises and others pushing boundaries with their companies. Another (Purpose Capital) raised $20 million recently. Impact investing is here to stay and we are confident it will grow as more people step back and think through how they are investing their funds. What might this mean for you?
Please note that this is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us on 03 348 8480 or by email to Steven Moe – stevenmoe@parryfield.com or Kris Morrison – krismorrison@parryfield.com
