Why Impact Investing

The world’s most pressing social issues cannot be fully addressed through government aid and traditional philanthropy alone:
And yet we continue to live in a world with:
pic_poverty
pic_income
pic_hunger
pic_topsoil
pic_desertification

A Development Mechanism where Traditional Aid Fails

  • Traditional development aid and philanthropy often falls short of its goals due to the “Samaritan’s Dilemma” – receipts stating to rely on charity as a means of survival
  • Development projects often fail after the sponsor withdraws, as there is no economic incentive or skilled management to sustain operations
  • Aid has an irreplaceable role in extreme situations such as famine or disaster relief, but is not enough to foster long-term economic and social development in frontier markets
Impact investment solves the problem of sustainability by focusing on creating self-sustaining enterprises that deliver a positive economic, social, and environmental impact.
  • Impact businesses are profit-generating and do not require continuous capital inflow after initial investments
  • Targeting market-rate or above market-rate returns, impact investment incentivizes capital allocation. Investors can utilize recuperated principal and returns from one investment to fund new impact projects.
dead_aid
Sources:

  1. OECD: 2015 Preliminary ODA Figures
  2. 2013 Index of Global Philanthropy and Remittances, Hudson Institute
  3. UN Sustainable Development Goals: Poverty
  4. UN Sustainable Development Goals: Hunger
  5. World Economic Forum. “What If the World’s Soil Runs Out?”
  6. UNCCD Brochure