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Impact Investment - What it is and why it matters
Impact investing is emerging as an asset class in its own right, with a potential market size of 1 trillion USD by 2020.
While there are multiple definitions of the term, “impact investing” generally refers to an investment approach that intentionally seeks to create – and measure – both financial return and positive social impact. The impact can be social as well as environmental in nature.
Impact investing is increasingly recognized as an emergent investment field with potential for scale. The field has seen significant and accelerating activity over the past decade. Estimates of the size of the market, and its potential, range from US$650 billion to US$1 trillion by 2020. It is expected to generate between US$183 billion and US$667 billion of profit during the same period. (These statistics come from “From the Margins to the Mainstream”).
Despite this positive outlook, succeeding in this highly evolving and often uncharted field is fraught with challenges, including the early stage nature of the ecosystem; the small “deal size” or character of investable opportunities; the misalignment with existing asset allocation frameworks; and the complexity that quickly emerges when investors and companies are asked to manage for a “double or triple bottom line”. Meanwhile, social enterprises face similar challenges. They are asked to deliver impact and financial returns in a highly resource-constrained environment.