Once a buzzword - Impact Investing is now Entering Mainstream Startup Investing.
December 18, 2017
Getting into Impact Investing first we need to understand what is “Socially Responsible Investments” (SRI). Investopedia says “an investment that is considered socially responsible because of the nature of the business the company conducts”.
Fundamentally the investor gives high priority to ethics before investing in companies. In other words, it is giving importance to corporate social responsibility first before making an investment. It could be in any form such as avoiding investments in companies dealing in tobacco, child labor, guns & ammunition, fossil fuels, or even gambling.
There is nothing fundamentally right or wrong in socially responsible investments since it differs from person to person. But the core of making socially responsible investments is to make a social difference along with getting returns for the money invested.
At a macro level, the investors consider, “[S]ocial, Environmental & Governance”. Gradually socially responsible investing is taking a leap jump by considering and maintaining the core principles of Sustainability Management.
The list of Core Principles of Sustainability Management according to Michael Ben-Eli list as below
The Material Domain
The Economic Domain
The Domain Of Life
The Social Domain
The Spiritual Domain.
The convergence of social, economic and profitability all at one place creates a win-win situation.
McKinsey has brought forward some surprising facts which were least expected.
The average Holding period for Impact Investing has been 5 Years unlike 10 Years in PE which indicates faster turnarounds of Investments.
Impact Investing ventures are outperforming the Private Equity.
It has also brought out that in the year 2015 India topped its Impact Investing with USD 1 Billion investments in India.
The Impact Investments are growing at a consistent rate.
Estimates are that by the year 2025 the market size of Impact Investing would be around USD 25 Billion.
Major sectors are Financial Inclusion & Clean Energy.
Vivek Pandit leader at McKinsey said “India is an attractive market with a large population and several social measures under stress, a government motivated to bridge social gaps and supportive of policy changes, and underlying economic growth and stable financial markets. Global investors can learn a from India’s experience as impact investing scales and comes of age in the country,”
Toshan Tamhane, Senior Partner, McKinsey & Company, said, "India is one of the world's biggest markets for impact investing, given the nation's many pressing social needs and an abundance of global capital. Assuming a growth of 20-24 percent based on global rates and strong growth of underlying sectors, we estimate that India's Impact Investing sector could absorb $6-8 billion of capital annually by 2025, provided some critical barriers are addressed by the industry and the government."
The Oxford University has started a fully dedicated Programme on Impact Investing.
Goldman Sachs has partnered with various communities such as local vendors, focusing on social development, funding small business and creating & issuing Social Impact Bonds.
Convergence of the technology and social factors; to create a positive impact in the society along with making profits for the investors is believed to be scaled up globally in the coming times. Private sector and Startup’s are still in a nascent stage with humungous opportunities up for grab.
Often we are the victim of Scarcity of Plenty.
With a convergence of the Private Sector & Governance in Impact Investing could create the next growth story. The growth and the size of the emerging middle still remain unmatched. The effect of Impact Investing is not less than that of the Multiplier effect in the Financial parlance.
The ever-growing ticket size of investments and sectors in India has just begun. Next billion dollar company could be rather would be from Impact Investing. The sectors that form the core of Impact Investing are as follows financial inclusion, energy, agriculture, cleantech, infrastructure, healthcare, and communication.
Private organization and global social companies do not work around the Government of various countries rather they work with the government to Impact the society at large. Hence the strongest link in the Frontier Markets like the India is Impact Investing.
Startup focusing on opportunities that create Impact in the society with good objective and the comprehensive plan would certainly be entering the new Black. In India when the housing sector was given an Infrastructure tag this could lead to many Startup Impact Investing Opportunities.
Many vital elements suggest the truth about the fact the Impact Investing can help you live a better life. Once such is that it can sustain the affordable housing. Even emergence of power from the nonfossil fuel can be considered as Impact Investing.
What was once very popular brain drain and talk of the town, is no more popular as it was a decade back. Time has come for reverse brain drain, where startups are looking to solve problems keeping in mind the society at large. Social Impact and Impact Investing would be prioritized by both the government and the private sector in the years to come.
It is without saying that Impact Investing would become essential for both the government and the private players, this will only make it more accessible and widespread.
Transformational benefits would come when the results would be given much higher importance than the investment opportunity and investor returns. High chances of convergence of philanthropic investments coming in form of Impact Investing.
Innovation and Leadership in impact investing could lead to this becoming mainstream. This is because the business would be a force to create good. Growth at the same pace and probably Impact Investing would be a part of Most Important Pillar of Value Investing.
If you are an Investor then it is the right time for you to grab the opportunity in this form. You might be putting a lot of money on the table if you are not changing with time.
If you are a startup you could be attracting funds with a cause of creating a larger good alongside opportunities to tap Impact Investing.
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Stories by Chintan Chheda