Impact Capital
Sustainability’s Triple Bottom Line
What’s the real purpose of your project? What are your project’s social, environmental and economic impacts, benefits, or returns on capital employed? How do you measure and monitor these impacts?
Impact investments create positive upside beyond financial returns. Some would argue that, in business, financial profit alone is enough. Is it? If you say “yes” to this, then we can only ask that you make sure your project’s ESG does no harm in the service of profits. This has gradually become a moral imperative.
Simply stating a business is within the law — or that it is not illegal — to gradually destroy our life-giving planet or cause or perpetuate social harm, leaving a trail of ill health, poverty traps, or worse … is simply unwise — at best a needless risk.
But let’s ask a different question — not “how low can we go?” nor “What if the quest for profit does social or environmental damage (unintended consequences, at first)?” nor even “What if a given venture doesn’t last long enough to create abiding ‘sustainable’ value, or just makes money and nothing else?”
There’s nothing inherently wrong with making money. It is how profits are realized that matters most.
Increasingly, with the advent of ESG and Impact Measurement & Management (IMM) reporting, and probably a few other acronyms, all investing is no longer just about the financial returns. Drivers like the recent COVID-19 pandemic, fears of inflation/deflation, capital markets stability, increasing energy costs, heightened concerns about climate change … add up to more and more investors wanting their money to fund companies as committed to a better world as they are to their financial bottom line. In practice, this depends on values — on what you or we (jury of our peers) say matters most.
Thus, a better question, one that’s entirely worth asking: Is there societal and/or environmental benefit, affording the “soft pillow” effect (sleeping at night may seem intangible, but for anyone with a conscience, that has to mean something) or is there at least a commitment to sincere efforts to maximize shareholder sustainable value?
Try on this definition of “impact investing” — the Global Impact Investment Network (GIIN) defines this as “the intention to generate social and environmental impact alongside a financial return.” Impact investments can be made in both emerging/developing and developed markets, and target a range of expectations for monetary returns, from philanthropic to below-market to market rate, depending upon the investor and circumstances.
What value? Impact investments build a flourishing “ecosystem” of virtues, make enough money (in the form of assets and profit streams) to self-sustain, and simultaneously inspire and promote values (whether or not explicit) that spark further innovation, create better jobs, jobs that (if employees are encouraged to think for themselves) provide meaning and hold promise for future jobs in future generations, and “make a difference” in cleaning up the mess of single-bottom-line capitalism, a take-make-waste and unsustainable experiment, rapidly heading toward several unsustainable tipping points, sudden and undesired changes, like falling off a metaphorical cliff (runaway feedback loops that spell climate chaos), but with impact solutions aligned with impact capital, instead, a cycle of good.
This is the essence of impact capital — going well beyond recouping the original investment — to build a legacy. This framework is what gave rise to In3’s Investment Strategy described here
Resultant projects, programs and ventures made possible through impact investments often address pressing challenges in diverse sectors such as sustainable agriculture, clean technology (including renewable energy, water, materials), microfinance, and affordable and accessible basic services from housing to healthcare, from education to sanitation, from trash to treasure. More at In3 Case Studies & Testimonials.
Some additional key words and phrases, including “ESG investing” and “SRI,” are defined in this glossary.
Access to basic services are seen as part of human rights, environmental and social justice, where impact capital now finds talented entrepreneurs solving these pressing issues, mirroring the UN Sustainable Development Goals (SDGs):
- energy security, food security, water security … climate change (which affects the poor disproportionately to the more wealthy)
- helping people escape poverty traps, building toward local self-reliance
- improved quality of life and living conditions (such as clean indoor lights) delivering healthier places to live or work.
In short, impact investments grow regional economies, strengthen trade partners, create jobs and change lives. This is similar to, and sometimes also called sustainable development, from the “social capital” side, social entrepreneurship, or even ethical/responsible investing.
At In3, we have a bias toward private-sector, for-profit and entrepreneurial solutions, as they create scale generally not possible through government incentives, humanitarian aid or philanthropy, or the non-governmental service sector, which have their place, too, especially in the face of crises and dislocations.
UN’s Environment Program Finance Initiative (UNEP FI) estimates at least $5-7 trillion per year until 2030 is required to implement the SDGs more
UNEP Impact Working Group banks (scroll down) and starting point for effective implementation of the Principles for Responsible Banking
We can credit pioneer Jed Emerson for coining the apt phrase “blended value.” Impact investing delivers sustainable value in social, environmental and financial dividends. Often the environmental piece is not a cost but an advantage, as we are seeing in projects that convert waste, use resources more wisely, or design as nature would to not produce waste in the first place.
Also proving successful in recent year are public-private partnerships, and other Joint Venture (private sector) partnerships, aimed at these same developmental goals, such as building infrastructure, capacity, new opportunities for education and advancement, delivering clean water, energy and healthy food, levelizing the true cost of energy, enabling access to capital, and other basic services.
Isn’t Impact Investing just SRI by another name?
Some would credit the roots of modern impact investing with Socially Responsible Investing, or SRI. The main distinction is that SRI tends to focus on screening out bad actors from portfolios of public equities as exchange-traded mutual funds, or combining public stocks with bonds or other asset classes in a myriad of instruments managed by professionals.
Not every worthwhile project or venture delivers triple-bottom-line benefits, but one of our core principles, shared by a growing number of individuals, organizations and institutions worldwide, is turning liabilities into assets. Turning waste and other problems into resources. This is not only extremely profitable, but upholds principles of responsible investing.
Some industries transform the entire value chain is ethical. Rather than focusing narrowly on financial returns “at any cost,” In3 Group and our partners give preference to projects and ventures that uphold these impact investing principles. Investments for a greater purpose than just making money.
The business case for delivering social and environmental impacts translates to better financial performance in the long run, with upside advantages (markets aligned with these principals, hungry for solutions) and fewer downstream problems (from regulations favoring cleaner approaches to unsustainable ecosystems), thus leading to more priority attention by In3 and our partners, better loan rates, lower fees, and faster processing.
Some investment banking services and funds are agnostic about the greater impacts — positive or negative — that their clients have. Not us.
At In3, we catalyze, facilitate and help realize impact investments in emerging markets and developing economies where the most benefits can be derived.
Impact investing, along with sustainable development’s “triple bottom line” investing, or “social investing,” is also a priority for our main lenders and equity partners.
For further reading (recent In3 blog articles):
- Definitions and background / introduction: Impact Investing for Sustainability — the emerging opportunity
- Impact Investing reaching mainstream acceptance — will it outpace financial-only returns?
What is a “sustainable” approach to international development?
Social ventures and impact projects often focus on underserved or emerging markets in developing economies. A sustainable approach to international development is one which takes account economic, social and environmental factors, and where results are not dependent on finite resources. Something which is sustainable will not use more natural resources than the local environment can supply; more financial resources than the local community and markets can sustain; will not produce wastes with “no place to go” (toxins that accumulate and persist); and will have the necessary support from customers, the community, government and other stakeholders to carry on indefinitely.
Trade partners or cooperative agreements, such as those with host governments, loan guarantee programs, finance facilities, etc., help ensure the project will be supported (or at least allowed) where sustainable solutions are needed most.
Further Reading & Resources
- 2020 Impact Investment Publications: Free download of Rockefeller Philanthropy Advisors’ Impact Investing Handbook: An Implementation Guide for Practitioners (PDF of English version) –180 pages
- Confronting the 4 Myths of Impact Investing, by Jean Case, CEO of Case Foundation, June 8, 2016.
- Updated Article (by In3 founder Daniel Robin): “Impact Investing for Sustainability — the emerging opportunity” (2020)
- How Impact Investors Evaluate what Ventures to Fund, from Devex, June 8, 2016
- Huffington Post: Evolving Impact Investors Sense of Self, by Trevor Neilson Co-Founder, Global Philanthropy Group, April 18, 2016, updated 2017.
- United Nations Framework Convention on Climate Change (reference list of multilateral and bilateral development funding sources … difficult to secure, but compatible with CAP funding as the equity investor).
- UNEP Finance Initiative Impact Management Platform.
- In3 Capital’s Investment Strategy