Investors around the world use impact investments to unleash the power of capital for good. Continue reading to learn more about what impact investing includes, who makes impact investments, what real-world outcomes look like and more.
What are impact investments?
- impact investments
- Noun: Impact investments are investments made with the intention to generate positive, measurable social or environmental impact alongside a financial return.
Impact returns add unique dimensions of value to investments and are compatible with a range of financial returns from below market to above market rate, depending on investors’ strategic goals. Impact investments can be made in markets at any stage of growth.
The impact investment market provides capital to address the world’s most pressing challenges in sectors including energy, microfinance, healthcare, sustainable agriculture, infrastructure and housing.
What are the elements of impact investing?
The practice of impact investing is defined by the following elements:
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Intentionality
Impact investing is marked by an intentional desire to contribute to measurable social and environmental benefits.
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Use of evidence and impact data in investment design
Impact investing needs to use evidence and data where available to drive intelligent investment design.
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Management of impact performance
Impact investing comes with a specific intention and necessitates that investments be managed towards that intention.
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Contribution to the growth of the industry
Impact investors share learnings where possible to enable others to learn from their experience.
Investors’ approaches to impact measurement will vary based on their objectives and capacities. Measurement and management choices reflect investors’ goals and intentions. In general, best practices for impact investing include:
- Developing a theory of change to identify the path to reach social and environmental impact objectives
- Collaborating with relevant stakeholders to develop the theory of change and impact objectives
- Setting performance targets related to these objectives using standardized metrics
- Monitoring and managing the performance of investees against these targets
- Reporting on social and environmental performance to relevant stakeholders
- Optimizing future impact returns based on data and learnings from past investments
Why impact investing?
Impact investing challenges the long-held views that social and environmental issues should only be addressed by governments and philanthropists, and that market investors should focus exclusively on achieving financial returns.
The impact investing market offers diverse opportunities for investors to advance social and environmental solutions through investments that produce both financial and impact returns.
Many types of investors make impact investments. Here are a few common investor motivations:
- Asset owners and managers can add unique dimensions of value to their portfolios and investments.
- Asset owners can use impact analysis to improve their portfolios’ responsiveness to changing social and environmental conditions.
- Banks, pension funds, financial advisors and wealth managers can provide client investment opportunities to both individuals and institutions with an interest in general or specific social and environmental causes.
- Institutional and family foundations can leverage significantly greater assets to advance their core social and environmental goals, while maintaining or growing their overall endowment.
- Government investors and development finance institutions can provide proof of financial viability for private-sector investors while targeting specific social and environmental goals.
Who is making impact investments?
Impact investing has attracted a wide variety of investors, both individual and institutional.
- Fund managers
- Development finance institutions
- Diversified financial institutions and banks
- Private foundations
- Pension funds and insurance companies
- Family offices
- Individual investors
- Non-governmental organizations
- Religious institutions
- Corporates
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What you need to know about impact investing
This report provides an outline for institutional asset owners (IAOs) seeking new strategies to respond to the global challenges of climate change and social inequality. These challenges increasingly impact financial markets and create unpredictability for the future — a challenge for IAOs with long-term investment horizons. Applying an impact lens through a holistic portfolio construction approach presents a powerful approach to adapt to this reality. This strategy allows IAOs to tackle global challenges head on, increasing their scope to ensure both financial returns and a better quality of life for beneficiaries and the wider world.
GIIN Investors’ Council
The GIIN Investors’ Council, a leadership group for active large-scale impact investors, are among the leading institutional impact investors globally.
How do impact investments perform financially?
Source: Global Impact Investing Network (GIIN), 2024
Impact investors have diverse financial return expectations. Some intentionally invest for below-market-rate returns, in line with their strategic objectives. Others pursue market-competitive and market-beating returns, sometimes required by fiduciary responsibility. Most investors surveyed in the GIIN's State of the Market 2024 pursue risk-adjusted, market-rate returns.
Note: Excludes one organization that did not share financial or impact performance relative to expectations. Source: Global Impact Investing Network (GIIN), 2024
Respondents also report that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets and the market as a whole.
What are some global examples of impact investing?
The impact investing industry is full of success stories: stories about impact investors using the power of their capital differently, stories about entrepreneurs with exciting new ideas and stories about the end consumers who benefit from fresh solutions. All three of these perspectives are woven together in these impact investing success stories:
- Acumen and Everytable: Bringing Good Health into Reach
- LeapFrog and Bima: Reaching the Unreachable
- Patamar Capital and Kinara Capital: Transforming Lives, Livelihoods, and Local Economies
Plus, read these stories to explore how impact investing is improving the lives of women in Bolivia, the people and environment of Mongolia and bilingual communities the United States.
Click through the case studies below to view impact investing examples:
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Better Futures with Better Stoves
With innovations on the traditional cooking stove and a unique distribution system, Greenway makes an impact on health and the climate in India.
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The Entrepreneurs Improving Menstrual Health in Mali
Adam and Awa Drabo, founders of Sutura, have a mission to improve menstrual health by increasing access to sanitary pads in their country and across the continent.
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Housing That's Good for Business and the World
At the Green at 9 and 90, investing in residents’ quality of life and sustainability measures is beneficial across the board.
How big is the impact investing market?
The GIIN estimates the size of the worldwide impact investing market at $1.571 trillion USD, marking the first time that the organization’s widely-cited estimate has topped the $1.5 trillion USD mark. The figure, which is the central finding of the GIIN’s Sizing the Impact Investing Market 2024 report, reflects an increasingly comprehensive measurement of impact assets under management globally.
What is the current state of the impact investing market?
Note: Excludes one organization that did not provide answers to this question. Source: Global Impact Investing Network (GIIN), 2024
While some investors have been making impact investments for decades, recently there has emerged a new collaborative international effort to accelerate the development of a high- functioning market that supports impact investing. While this market is still relatively new, investors are optimistic overall about its development and expect increased scale and efficiency in the future.
Impact investors generally recognize broad progress across key indicators of market growth...
Note: Excludes one organization that did not provide answers to this question. Source: Global Impact Investing Network (GIIN), 2024
... but also acknowledge that some challenges remain.
Where can I go for more information?
The GIIN builds critical market infrastructure and supports activities, education, and research that help accelerate the development of the impact investing field. Be sure to check out the following resources:
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GIIN Membership
Tap into the leading network of like-minded investors and organizations interested in deepening their engagement with the impact investing market.
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IRIS
IRIS+ is the GIIN's catalog of generally-accepted performance metrics.
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Research
The Research Center houses the latest information about market activities and trends, performance, practice, and more.
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Faith-Based Investors Hub
The Faith-Based Investing Hub provides a space for faith-based investors and their service providers supporting faith-based investors to engage in learning, leading, and collaboration.