Impact investment: Generating returns and development
Thursday, 14 November 2013 00:51
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By Shabiya Ali Ahlam
While impact investments are not very popular in this part of the world, it is essentially a new way of investing by looking at non-financial returns while making a decent income.
With the dual objective of creating wealth while uplifting society, a session chaired by SNS Impact Investing Netherlands Managing Director Prof. Harry Hummels on ‘Generating Returns and Developments’ noted that impact investments emphasises mostly on areas such as infrastructure, entrepreneurship, education and healthcare.
“While some companies invest US$ 1 billion to reduce the impact of its investments, these funds are steps taken to preserve the society. It is intriguing to see that some of these organisations are willing to commit huge sums to the environment while making decent returns.”
Impact investors
So where are the impact investors? Hummels said that approximately 32% are in the US. “We are seeing a growing interest from businesses and governments in this regard and the developed region attracts capital for this. This should be adopted in other parts of the world since this is the way forward.”
Investment Partners UK, Founding Partner Nadia Sood pointed out that there has been a preconceived notion that for profit maximisation, companies may have to compromise on environmental and social issues. However, data shows otherwise as it is observed that organisations can pursue positive and motivated investment strategies whilst maximising returns.
Diverse asset classes
Looking at the asset classes available for investors, it is observed to be very diverse. “If you are trying to construct a diverse and robust portfolio of investments across asset classes, it should have a mix of assets. It should have different risk profiles since then as a whole, the investor is protected,” Sood explained to the audience.
“If you take the issue of placing money in public equity and look for social environmental change, the answer is yes. The financial markets and investment managers focus on socially responsible investment as the first tier strategy in terms of achieving the least harm,” she added.
Increasingly investors have expressed that they prefer to deliver to companies which are willing to invest in social good. Data has shown that companies which incorporate sustainability into their operations, act responsibly with society, and look for business opportunities in areas where there is least impact to the environment, typically will go on to outperform the market.
On the other hand, in companies that doesn’t consider such aspects it is noticed that its management does not consider the macro level risks, and are not planning adequately. Such a mindset, Sood stressed, could eventually affect the share price and the financial success of the company.
Financial inclusion
Bringing financial inclusion into the discussion, Accion Venture Lab, USA, Senior Investment Officer Vikas Raj said it is about having a full suite of financial products. More than credit, it looks at all areas financial services will have to provide. “It has to be provided with high quality and has to be affordable to the markets. It is also important that the financial services be available to those who appreciate the capital.”
Highlighting its three pillars, Raj said financial inclusion is about building micro financing institutions that meet the elements of quality, high diversity, and competitive products to the underserved. Moreover, it is the building of apex bodies that improve the quality and transparency of financial institutions.
Importance of start-ups
Shedding light on the importance of start-ups, Raj emphasised that they have an important role in the economy. However, it is observed that in any part of the world, such initiatives have very little support to help reach new levels. “While there is a gap in funding start-ups, the idea is to use new technologies and new processes to help financial services institutions to build products that can benefit the underserved,” he said.
