To the Global Impact Investing Network, a New York non-profit organization working to advance impact investing globally, defining impact investing is fairly simple — and broad.
The network defines it as investments made into companies, organizations and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Investments are made in emerging and developed markets, with return targets that depend on investors' strategic goals.
In April, the GIIN came out with four core characteristics of impact investing, to help set baseline expectations:
- Intentionality, the investor aims to have a positive social or environmental impact.
- Use of evidence and impact data in investment design.
- Manage impact performance, including communicating with and supporting others in the investment chain.
- Contribute to the growth of the industry, with shared terms, conventions and indicators for describing impact strategies and performance.
In practice, it is not quite that simple.
"I spend so much of my time educating clients and making sure we are talking about the same thing," said James Rich, head of U.S. restructuring for Aegon Asset Management in Chicago. His firm created its own glossary because even its employees were using different terms, said Mr. Rich, who is responsible for credit opportunities and emerging markets strategies.
"We believe (impact investing) is the one piece of responsible investing that potentially puts the positive social and environmental impact ahead of the return," said Mr. Rich, who sees movement toward a tipping point as younger generations start making investment decisions or demands. "We think we are going to see significant inflows into those strategies," he said.
To Jonathan Needell, president and chief investment officer of Rancho Santa Margarita, Calif.-based real estate firm Kairos Investment Management Co., unlike ESG or sustainable investing that can involve negative screens, "impact implies that you are more proactive around a theme. Impact has to be embedded in your strategy."
Currently $300 million of the firm's $1.5 billion in assets under management is invested in an affordable housing impact strategy that he expects to grow to half of the firm's assets. Until there is more volume on the public markets, he said, "private markets like private equity and real estate have a better chance of being an impact investment in a proactive way."
John Hoeppner, head of U.S. stewardship and sustainable investments at Legal & General Investment Management America in Chicago, sees emerging consensus on the definition of impact investing. "The intentionality of the strategy is going to be the heart of it. The goal is long-term improvement," Mr. Hoeppner said.
