WHAT IS IMPACT INVESTING?

Reaching consensus around a common definition to a relatively new concept is always a challenge. In this context, we find the definition of impact investments used in JP Morgan’s November 2010 “Impact investments: An emerging asset class” report useful:

“Impact investments are investments intended to create positive impact beyond financial return. As such, they require the management of social and environmental performance (for which early industry standards are gaining traction among pioneering impact investors) in addition to financial risk and return. We distinguish impact investments from the more mature field of socially responsible investments (“SRI”), which generally seek to minimize negative impact rather than proactively create positive social or environmental benefit.” (JP Morgan, 2010)

We see impact investing as a bridge between philanthropy and the outright quest for financial returns. At one end of the scale, the differentiation seems quite straightforward: impact investing is not charity, there is a clear expectation of a return on investment, albeit lower than that offered by the market on a risk-adjusted basis. In the African context however, where almost any investment can be deemed to have an impact on the host country’s development, through job creation or contribution to GDP and tax revenue, determining where the realm of impact investing stops is more challenging. The adoption of industry standards is therefore of the essence.

African Impact Report