Growing Optimism for “Impact Investing”

Is it possible to do good in the world while also making a profit? A growing group of investors, known as “impact investors”, believe that it is.

This piece is cross-posted from the New Ventures website.

Impact investors aim to make positive social or environmental gains alongside profits through their investments. A recent report by J.P. Morgan and the Rockefeller Foundation estimates the value of this emerging impact investing sector to be between $400 billion and $1 trillion, with profit potential between $183 billion and $667 billion over the next decade. According to the report, “Impact Investments: An Emerging Asset Class”, impact investing constitutes a new asset class.

The report analyzes opportunities in five impact investing sectors – affordable urban housing, rural access to clean water, maternal health, primary education, and microfinance – that serve the global Base of the Pyramid (BoP) population. The BoP is comprised of those who earn less than $3,000 annually.

BoP markets are typically underserved by traditional business, which may exclude this population from being considered as part of a potential customer base. However, WRI research has shown that the BoP population will often manage its finances to buy affordable products or services improving their productivity and reliability of income.

This market introduces operational challenges to otherwise proven business models. For example, the challenges often require innovative approaches to accommodating unreliable income streams or delivering products and services to remote rural areas. While government-led or philanthropic solutions can go part of the way, impact investment can further help capital to flow to profitable businesses with positive environmental and social benefits.

Impact investing is gaining increasing traction among a wide range of debt and equity investors, including pension funds, family offices, private wealth managers, foundations, individuals, commercial banks and development finance institutions. Many impact investors choose to focus either in emerging markets or in developed markets. Part of the reason for this specialization is the significant regional differences that require local expertise. But another driver is investors’ value sets: some prefer to help the world’s poorest in emerging economies; others prioritize their local neighbors in need.

Within the developing world, the growing suite of impact investors is focusing on particular regions and sectors. Gatsby Charitable Trust and the Bill & Melinda Gates Foundation direct some of their investment capital to positively impact the lives of smallholder farmers in sub-Saharan Africa. Gray Ghost Ventures, Acumen Fund, and Omidyar Network all have programs that actively invest in alleviating poverty by financing innovations directed at India’s low-income populations.

These trends, set against the backdrop of climate change, global population growth and finite resources, motivated New Ventures México to launch the first Latin America Impact Investment Forum. The forum, which will be held in Mérida, Mexico from February 2-4 2011, is designed to foster investments and alliances that will support impact investing initiatives throughout the region. It will provide an opportunity to celebrate the accomplishments and progress that the private sector and the investment community have made towards sustainable economic development.

New Ventures Mexico is part of the New Ventures Global Network, the World Resources Institute’s (WRI) center for environmental entrepreneurship, and is a leader in Mexico in promoting the growth of businesses that generate positive economic, environmental, and social impacts.

For more information about the Latin America Impact Investment Forum please visit www.inversiondeimpacto.org or write an email to inversiondeimpacto@nvm.org.mx

Leticia Gasca is the Manager of Public Relations and Communication at New Ventures Mexico.