Impact investing has been gaining momentum both in the United States and abroad, promising to be a new model for sustainable development. Melissa L. Bradley CEO of Tides, a non-profit organization that provides financial and management services to non-profits, has through her blog enumerated how she defines this new space and her thoughts on this movement.
Melissa defines the impact investment space as “any financial investment designed to catalyze social benefit and generate a financial return. Whether the investment has a primary purpose of social or financial return is irrelevant at this point; it just needs to generate the promised return.”
While there are a number of evaluation tools and metrics to define and measure social impact, it is necessary that the potential investors be given the whole context. Implications of the following aspects need to be evaluated and included into the tools.
- The significance of the geographical area where the efforts are being concentrated.
- The significance of the sector in which the company is working in.
- Qualitative indicators like business leadership – who is running the business, their skill set and expected trajectory of success.
- The type and amount of capital invested.
She rightly states that being prescriptive at this early stage runs the risk of limiting the field thereby overlooking important facets that could determine the success and failure of the business.
The article goes on to suggest some other important areas that need to be considered:
- The topic of fiduciary responsibility: Deciding for financial, as well as social return is a balancing act. A baseline of acceptance for how to make such balancing decisions need to be discussed.
- Costs of doing good: Identifying, acknowledging and tracking all costs associated with “doing good” are necessary to ensure the sustainability of the sector.
- The role of the government and its policies: Incentives for the entry of new players into the impact investing space needs to be discussed.
Impact Investment is definitely an area of great opportunity but with a good possibility of the end objective being lost in all the hype. Moving forward it is essential for us to build an ecosystem that is more than a temporary solution to long-term problems.
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