“That’s what capitalism is supposed to be about — the markets are supposed to be working for the good of all.” — Pax World CEO Joseph Keefe for PBS NewsHour
As more social issues are surfacing, more and more solutions are being presented to tackle the community threatening concerns we are all being faced with. The social impact investing approach is showing sustainable results in many industries and is showing an increasing amount of promise towards solving future crises. However, a question that is striking many investors and businesses who put this approach into practice is: where did social impact investing come from? It certainly didn’t just put itself into action out of the blue. Since its rise in popularity it has been going mainstream and is being called the “New Venture Capital.”
The Rise of Social Impact Investing
During 2007 global discussions on how to solve societal problems, there are various reasons as how why it came about. One of which included the mass amount of environmental issues that our communities face now and how they’re out of reach of any governmental budget. This meant that more capital needed to be focused towards these issues and more business models are presenting social impact investing as a profitable solution. It was also prominent that a large majority of funders were looking for organizations that made it a priority to change the world for the better. All of this spun off of the fact that newer generations made environmental and other societal concerns a major priority in their studies and occupational choices. In the future, social impact investment is expected to be worth $650 billion-$1trillion.
Impact investing has been receiving support from market infrastructures, such as keying different terms in rating systems and the connection between demand and supply given by social stock exchanges. Certain rating systems are now able to track the amount of impact their company is making at the same scale of their financial performance as well. In order for impact investors to know who to invest in, social stock exchanges is a tool they use to measure returns, build portfolios, and information on whether to opt out of an opportunity of investment. Both are online platforms that investors heavily rely on when it comes to important investment decisions. While seeking these social land financial returns, new legal structures have been defined for hybrid business. Some of which include, L3C (Low-Profit Limited Liability Company), the Benefit Corporation and the Flexible Purpose Corporation.
In general, it can become difficult to define and measure impact as a unit but with social impact investments’ growing popularity, the globe will be seeing it as a significant factor in investment opportunities. It may not be the only solution but it will certainly deal with more social and environmental problems than others.
It’s Going Mainstream
Social impact investment in the mainstream world owes its popularity to the certain demographics it has originated from. This being the rise in concern for women’s rights and youths concern for the worlds they are growing up in. Everyone wants their money to be making a difference and this has been shown as a major factor throughout millennials passions and pursuit for social justice. They seek a fair return just as much as they seek a positive impact in their communities. The ultimate drive in this type of investment demand is the final alignment of one’s money and values.
Social impact investing is taking off. According to Pax World CEO Joseph Keefe, “It’s going mainstream, and perhaps the biggest reason it’s going mainstream is because of certain demographics. And I mean women, younger people – so-called millennials – who increasingly want their money to be making a difference. They want a fair return, but they also want to have a positive impact. They want their money aligned with their values. And that, I think, is driving the demand.”
Flaws in the system are most commonly seen when the amount of time you expect to maximize returns is so short that sacrificing the environment and workers well beings start to become an issue. Social impact investment is keyed as a sustainable type of investment. This means that it takes on a longer-term horizon on social and financial returns. Some significant elements that employers are taking into concern when putting social impact investment into consideration is not only producing profits but also producing jobs that revolve around their employee’s well-being. Ultimately, it results as a contribution to positive improvement seen in society.
The New Venture Capital
The question of how are we able to address societal concerns with similar characteristics of venture capitalism arose when mobile security invested $150 million into venture capitalism due to the increasing demand in cyber security in 2014. More global discussion consisted of leveraging a vast amount of funds into private capital as a way to focus on pressing needs towards societal concerns of poverty, crime, environmental issues, etc. In an age of desperate needs for solutions in societal issues across nations, social impact investment has taken over the term “venture capital.” It was put into full effect when industries started to partner with governments to remove roadblocks in private sectors. Venture capitalism usually refers to the investment in projects that are considered to be of higher risk than others because it’s a new or expanding business opportunity. The different now between venture capitalism and social impact investment is the decreasing risk element found in social impact investment. Due to the new online platform tools and moral mission statements, new or expanding NGOs/non-profits are able to make starter business decisions and present their business pan in a sustainable and effective approach. Overall, this innovative approach to impact investment is not only a new venture capitalism, but it’s an all-around better way to invest.
Sources:
http://theconversation.com/explainer-the-rise-of-social-impact-investing-73357
https://www.pbs.org/newshour/nation/social-impact-investing-going-mainstream