Impact Investment
Impact investments are made with the intention to avert the worst consequences of climate change. Impact investors vary in their return expectations, their patience and flexibility.
Impact Investment
Impact investing is another form of catalytic capital, made with the intention to generate positive, measurable social and/or environmental impact alongside a financial return.
In the case of averting the worst consequences of climate change, impact investors are looking to reduce greenhouse gas emissions, increase circularity and build climate resilience.
Impact investors vary in their return expectations, their patience (term of investment) and flexibility. Many types of investors participate in impact investing including public and private foundations; family offices; banks and other institutional investors such as superannuation funds and insurance companies; governments; fund managers; community finance organisations; and individual investors.
Impact investment is driven by the goal of applying capital to achieve social and/or environmental impact. As well as a financial return, impact Investors want to achieve a measurable impact from their investment in a project or enterprise.
Measuring impact is a critical part of impact investment. A great deal of work has been undertaken by leading international impact investing networks to bring more consistency to this area of work. Some of this aligns with the Sustainable Development Goals.
Catalytic capital plays some important roles in the early stages of a project or enterprise. It can support start up enabling business and finance models to be developed and tested; it can help the enterprise build a track record over time. It can be used to derisk and leverage in other sources of capital that have lower risk appetites and less flexibility. It can also help embed environmental and social impact into the enterprise.
Some Australian foundations are impact investors, and this gives them another tool that can be used to help accelerate our climate transition. A philanthropic grant (or forgivable loan) can sit alongside impact investment in certain transactions.
Australia has a growing impact investment sector with some impressive intermediaries and funds. The Social Impact Investing Taskforce made recommendations to the Federal Government about strengthening this sector. Australian Social Impact Investing Taskforce – final report.
Impact investing is an important source of catalytic capital to finance the climate transition.
Relevant links
- Impact Investing Australia
- Sefa
- Global Impact Investing Network (GIIN)
- What you need to know about impact investing (GIIN)
- Impact Investment Summit (Asia Pacific)
Impact Investment Blended Finance Case Studies
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