This is how we define impact investing
Measuring impact - that is, social and environmental outcomes - can be complicated and impact investments can be made in an infinite number of ways. But as a starting point, there are a few simple definitions that we at Impact Invest apply. We have developed these together with the pioneers of impact investing internationally.
The term "impact investing" was first used by business angels and institutions who were interested in developing economies and who wanted to enter into venture capital where the risk profile was too high for traditional financiers. The purpose was to finance, for example, economic growth in poor areas, access to good health care, education or clean energy and the environment, no matter where you happen to be have been born. The social, and sometimes environmental, result has always been the focus of impact investors. The economic return can also be significant, but is often secondary to the impact that is being sought.
The key question for an impact investor is WHO benefits from a proposed solution - is the end user or customer a clearly identified group whose needs are not being met in another way? Is the purpose to finance effective solutions to under-funded local or global development goals?
Another important starting point for impact investing is also the added value you can add yourself as an investor; Where other private or public financiers are not yet willing to enter into capital, the effect of one's financing can be more significant. Impact investments are therefore synonymous with a willingness to take high risk, relative to the type of financing that is relevant. If the availability of capital is good, then such investment can be better defined as a "sustainable" or "responsible" investment.
The illustration below shows different investment strategies and where we see the spectrum of possible impact investments.