For over a decade now, impact investing has been on the rise, positioning itself beside social entrepreneurship as one of the world’s answers to an ever-changing social and environmental climate.
But what is impact investing? And where did it come from?
Impact investing: The basics
According to Investopedia, the term was first used in 2007. However, its practice has been applied in the years before.
At its most basic level, impact investing is simply investments that aim for a social benefit while providing financial returns. Sometimes referred to as a double-bottom line investment, impact investing aims for two benefits: the traditional return on investment in the form of financial returns, assets, etc., and the intention to generate a social and environmental impact. A cross between nonprofits and venture capital and private equity firms, impact investing, in essence, is simply investing with a purpose.
The more broad-based adoption of impact investing by new and seasoned investors show that this practice is quickly becoming popular, with the age of information being the most important and relevant one.
Today’s advances in technology have brought a wide array of benefits to society, mainly with how information is provided and consumed by the masses. Nowadays, anything can be accessed with just a simple click or swipe on our smartphones. Social media has changed the way we interact with everyone.
As a result, people became more aware of their social and environmental responsibilities and what it entails. They then decided that they’ll be pushing for change, in one way or another, and impact investing is the easiest way to start.
At the moment, the impact investing market is divided into three parts:
a. The supply, which consists of foundations, high-net-worth individuals that are looking for investments, family offices and the like;
b. The demand, which is mainly made up of corporations and social enterprises looking for long-term sustainability and the capital for the progression toward said sustainability; and
c. The intermediaries, which are companies or organizations acting as a network for both parties.
Currently, the market itself is ripe and blooming. What’s driving this surge? First, client demand is behind the growth, according to money managers. These shareholders and investors are the same people weaned by a society drowning in information and, therefore, are more likely to drive the corporations into making more socially responsible decisions via their investments and shares.
According to a survey with 808 high-net-worth individuals in the U.S. as correspondents, at least $3 million in investable assets have already been raised. In addition, 45 percent of high-net-worth investors either possess impact investments or expressed their interest in such investments.
Furthermore, CNN reported in 2017, citing the Global Impact Investing Network, that over $25 billion have been invested in affordable housing programs. Meanwhile, $19 billion and $14 billion worth of investments were made to energy projects and microfinance respectively. An increasing number of small-scale institutions are also being recognized, getting the boost they need from intermediaries focused on helping non-government organizations (NGOs) worldwide.
In the business of doing social good
One such intermediary comes in the form of a young cause-related tech firm Exponential, Inc. (XPO2), founded by French-American entrepreneur Dom Einhorn, just last year.
XPO²'s Mission is to Positively Impact 1 Billion Lives...
XPO2 has created a crowdfunding platform that connects NGOs with potential investors and supporters. The company does this in two ways: through direct dollar contributions and through the “cashless contribution” module, which the company pioneered. With the latter, consumers can easily support an NGO by simply purchasing products from the websites of participating merchants, and a portion of the sales goes directly to their chosen NGO.
This way, everyone has the opportunity to effectively become an impact investor, with XPO2 guaranteeing that the funds they generate are directly given to NGOs capable of making the biggest net social impact. In an effort to raise capital to reach more organizations in need of funding, the firm also recently launched its own rewards-based crowdfunding campaign.
The company aims to help 10,000 NGOs by 2023, with plans for creating new partnerships to make sure this comes to fruition. XPO2 hopes to be the standard when it comes to impact investing, giving every small- to medium-sized NGOs from around the globe an equal opportunity to make a positive change in their sectors and communities.
Impact investing is proving to be more than just a trend, becoming a global phenomenon that urges everyone to be more aware of our social responsibilities. With companies like XPO2 spearheading the cause, it won’t be long before it leaves some permanent positive impact in the world.