WHAT IS
IMPACT INVESTING ?

Our view

At Galileo, we dream about future with an abundance of quality jobs and affordable homes for our children - for the next generation. We envision continuous innovation in the delivery of basis services to every individual in environmentally sustainable and thriving world.

Imagine a world where investing always targets measurable and positive social and environmental outcomes, in addition to financial returns; a practice that will create a long-lasting impact for future generations.

Galileo is promoting a new wave of investments that builds a better world.

As defined by the Global Impact Investing Network (GIIN), impact investments are “investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return”.

“The growing impact investment market provides capital to support solutions to the world’s most pressing challenges in sectors such as sustainable agriculture, affordable housing, affordable and accessible healthcare, education, clean technologies and financial services, among many others.

Impact investments can be made in both emerging and developed markets, and target a range of returns from below market, to market rate.”

THE SPECTRUM OF CAPITAL

Source: The Bridges Spectrum of Capital (November 2015)

Main Characteristics

The four key characteristics of an impact investor as summarized by GIIN are as follows:

Intentionality – The intent of the investor to generate social and/or environmental impact through investments is an essential component of impact investing.

“These investments are made into enterprises and funds that expand access to critical goods and services, and/or generate positive impact through their operations. For example, investors may seek to use investments to increase access to financial services, education, healthcare, affordable housing or quality employment by underserved populations. Investors may also invest in solutions aimed at mitigating the negative effects of climate change and environmental degradation. Investor activities may be focused in developed or emerging markets, or both.”

Investment with return expectations – Impact investments are expected to generate a financial return on capital and, at a minimum, a return of capital.

“Grants are not expected to return capital and therefore are not impact investments. Grants however can play an important role in enabling impact investing – for instance, through incubating early-stage business models, providing certain forms of credit enhancement, providing technical assistance, or funding needed research and development.”

Range of return expectations and asset classes – Impact investments generate returns that range from below market (sometimes called concessionary) to risk-adjusted market rate.
“Impact investments can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital and private equity. Impact investors may also earn fees through the provision of catalytic instruments such as guarantees. Investors’ return expectations and the instrument(s) in which they invest reflect their intent and are typically driven by the economics of the investment. For instance, some may wish to support higher risk early-stage social enterprises in challenging markets or invest pursuant to various regulatory mandates, often with concessionary returns; others may choose to finance the expansion of proven business models to reach scale or invest in credit enhanced transactions, in the expectation of market or near market rate returns.”

Impact measurement – Commitment to measure and report the social and environmental performance and progress of underlying investments in order to ensure transparency and accountability.

“Investors’ approaches to impact measurement will vary based on their objectives and capacities, and the choice of what to measure usually reflects investor goals and, consequently, investor intention. In general, components of impact measurement best practices for impact investing include:

– Establishing and stating social and environmental objectives to relevant stakeholders

– Setting performance metrics/targets related to these objectives using standardized metrics wherever possible

– Monitoring and managing the performance of investees against these targets

– Reporting on social and environmental performance to relevant stakeholders”

What Impact Investing is NOT

– A grant making charity

– A supplementary Corporate Social Responsibility (CSR) marketing exercise, unless it explicitly pursues the achievement of social or environmental impacts;

– Mission-related investments (or sustainable investments) which incorporate environmental, social and corporate governance (ESG) criteria into investment analysis and portfolio construction across a range of asset classes and yet do not have an intention to pursue a social or environmental value explicitly.

performance

Globally, The overwhelming majority of respondents reported that their investments have either met or exceeded their expectations for both impact (98%) and financial performance (91%) (GIIN, 2017).

While two out of three respondents principally target risk-adjusted, market rates of return, there is widespread
acknowledgement of the important role played by below-market-rate-seeking capital in the market (GIIN, 2017).

MArket & growth

Impact investments exists across a wide variety of products, asset classes and sectors. A recent survey forecasts that by 2025 the global impact investment market will be worth $2 trillion (GIIN).

On a global scale, impact investments under management were worth about USD 114 billion in May 2017 (GIIN, 2017). After only two years, in June 2019 the amount of money invested in projects with a social or environmental benefit has increased up to USD 502 billion (GIIN, 2019).

The majority of assets are invested in private debt (24%) and private equity (26%). A significant proportion of these assets are present across financial services, energy, microfinance and housing sectors, with an increasing number of compact investments across the food & agriculture, infrastructure and healthcare sectors recently (GIIN, 2018).

SDG & impact investing


On September 25th 2015, 193 Member States of the United Nations adopted a set of goals to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. Each goal has specific targets (169 targets in total) to be achieved over the next 15 years.

For the goals to be reached, everyone needs to do their part: governments, the private sector, civil society and people like you.

  

In 2016, the Paris Agreement on climate change entered into force, addressing the need to limit the rise of global temperatures.

Governments, businesses and civil society together with the United Nations are mobilizing efforts to achieve the Sustainable Development Agenda by 2030. Universal, inclusive and indivisible, the Agenda calls for action by all countries to improve the lives of people everywhere.

  

Areas of critical importance for Humanity and the Planet

People

We are determined to end poverty and hunger, in all their forms and dimensions, and to ensure that all human beings can fulfil their potential in dignity and equality and in a healthy environment.

Planet

We are determined to protect the planet from degradation, including through sustainable consumption and production, sustainably managing its natural resources and taking urgent action on climate change, so that it can support the needs of the present and future generations.

Prosperity

We are determined to ensure that all human beings can enjoy prosperous and fulfilling lives and that economic, social and technological progress occurs in harmony with nature.

Peace

We are determined to foster peaceful, just and inclusive societies which are free from fear and violence. There can be no sustainable development without peace and no peace without sustainable development.

Partnership

We are determined to mobilize the means required to implement this Agenda through a revitalized Global Partnership for Sustainable Development, based on a spirit of strengthened global solidarity, focused in particular on the needs of the poorest and most vulnerable and with the participation of all countries, all stakeholders and all people.

The interlinkages and integrated nature of the Sustainable Development Goals are of crucial importance in ensuring that the purpose of the new Agenda is realized. If we realize our ambitions across the full extent of the Agenda, the lives of all will be profoundly improved and our world will be transformed for the better.

Source: Sustainable Development Knowledge Platform

Achieving the Sustainable Development Goals: The Role of Impact Investing

"The Global Impact Investing Network (GIIN) recognizes the global importance of the UN Sustainable Development Goals. As the world’s largest network of asset owners, asset managers and others involved in directing capital to investments that generate positive social and environmental impact alongside financial returns, the GIIN welcomes the unique role that impact investing will play in achieving these goals and building a sustainable future.
We urge all investors to contribute directly to the SDGs’ success. One group in particular is ready to heed the world’s call: impact investors.

Many private sector players have been deepening their impact from supporting business models that do less harm (e.g., using ESG principles to filter out businesses hat harm the environment or have poor working conditions) to making impact investments and building businesses that actively deliver solutions to global issues.

For years, and in some cases decades, impact investors around the world have been demonstrating the full potential of the private sector to drive progress in areas such as affordable housing, access to financial services, and sustainable energy—impact areas that very clearly line up with SDGs".

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GALILEO
International Impact Investing Centre Association

Zurich, Switzerland
Moscow, Russia
info@iiic.ch
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International Impact Investing Centre
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