By Maureen Aylward
Gordon Upton, an expert with 30 years experience in corporate and project finance, impact investment, and venture and capital markets, says that the challenge facing impact investment right now, despite growth in the supply of impact investment capital and the increased demand for it, is that there is only a trickle of capital flowing from investors to actual projects. “Established financial services providers generally believe that all capital should either be invested to maximize profits, with little or no regard for social or environmental effects, or simply donated to charity to maximize social or environmental returns. These beliefs do not serve impact investors,” says Upton.
Upton points out that the absence of effective market mechanisms, such as market clearinghouses, rating agencies, and syndication facilities seriously hamper investment. “On the supply side, high sourcing costs and lack of information, especially on social returns, leave potential impact investors wary of entering the field,” he says. “On the demand side, fragmentation of investment supply together with the inability to syndicate start-up and expansion finance opportunities, sets off an inefficient capital sourcing process that stifles the launch and expansion of new projects.”
The opportunity is to build a system that will allow impact investment to flow into broader areas of public interest, such as agriculture, provision for basic services, energy, housing, and healthcare in emerging markets. This will enable the impact investment movement to expand opportunities and ensure the shared benefits of globalization. “Impact investment can create and maximize value by blending corporate social responsibility, social enterprise, social investing, strategic and effective philanthropy, and sustainable development while addressing the cross-cutting issues of capital, performance metrics, leadership, organizational development, public policy, and tax and regulatory questions,” explains Upton.
Bulankov, a financial advisor and planner in investment and asset management, says certain investment strategies that were once the exclusive prerogative of select ultra-high-net-worth families and institutions are now making their way to Main Street. “Nowadays, most any investor with as little as $5,000 can establish a philanthropic fund through a donor- advised vehicle, invest in a socially responsible way, or provide micro-loans through the internet,” he says. For those not content with purely philanthropic pursuits, impact investing is the next logical step in this evolution.
“Voting with your wallet is taking a whole new, quite literal meaning,” Bulankov says. “It is only logical that an area that allows investors to align their values and desires for good with their desires for gain is one of the fastest growing areas.” He believes that impact investing gives the investor an avenue to lobby and further the cause that the investor deems worthy by putting money behind that cause, knowing that the full investment due diligence and analysis has been performed and there is no need to sacrifice gain to do good. “In my opinion, this is a very strong driving force behind impact investing, a force that may propel the industry to grow tenfold over the next decade,” Bulankov predicts.
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