A successful construction business wants to expand into an emerging market as there is great potential in the region. The emerging market also has a desperate need for decent housing for low-income families. What if the business set up a fund whereby those families could be given initial financial assistance and favourable loans to buy materials and build something on their own? Or, better still, what if a local social enterprise worked together with the business to distribute the materials where they are needed most and to ensure that the microfinancing was responsibly organised? The houses get built and the business gets its foot in the door.

This is a real-life example of social-impact investing, whereby investors, governments and corporations invest in, or partner with, social enterprise projects that deliver not only financial return but also a positive (and measured) social and environmental return. It has garnered increasing interest since the US-based philanthropic organisation, the Rockefeller Foundation, first coined the phrase in 2007. 

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A JPMorgan report estimated that, by 2010, the impact investing market represented investment opportunities worth as much as $1000bn over the 10 years between 2010 and 2020. The market now has its own network and a number of players including banks such as Deutsche Bank, foundations such as the Ford Foundation, and a multitude of companies. The company in the example cited above is Cemex, a global cement business headquartered in Mexico.

Taking responsibility

Impact investing comes in many forms. Investors can pay into a fund as they would in any other fund or, as a method of FDI, corporation Darryl Vhugen can set up in partnership with local social enterprises and so on. It can be an opportunity, as the above example demonstrates, for a company that is interested in a new market or wants to get a competitive edge in it, to dip its toes in.  

Impact investing also fulfils corporate social responsibility (CSR) goals on sustainability and responsible practices, and answers calls for those types of practices further down the supply chain.

Recently, the City of London Corporation, overseas aid charity Oxfam and social-impact investment specialist Symbiotics launched the Small Enterprise Impact Investing Fund (SEIIF) which has, among other things, supported a leasing company operating in Mongolia, which rents equipment to small-scale farmers. “SEIIF will help – through local structures – to re-enforce small, sustainable enterprises, which are then able to enter into the supply chains for larger organisations,” says Mark Boleat, policy chairman of the City of London Corporation.

However, impact investing is not only about sustainability, it is also about reducing risk according to Darryl Vergum, a senior attorney at land rights non-government organisation Landesa. “Think of the former government of Madagascar, which was brought down by protests at its proposed sale of land to Daiwoo for palm oil production. This is a CSR issue, for sure, but also a risk management issue; if you are displacing and impoverishing the local population, then they are going to cause trouble.”

Instead, Mr Vergum says companies need to “invest in the people and in the land”.  Proponents say that is exactly what impact investing allows them to do.