We need to boost impact investment to finance the growth of SMEs

19Sep 2020
The Guardian
 We need to boost impact investment to finance the growth of SMEs

​​​​​​​Impact investing refers to investments  made into companies, organisations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments provide capital to address social and or environmental issues.

Impact investors actively seek to place capital in businesses, nonprofits, and funds in industries such as renewable energy, basic services including housing, healthcare, and education, micro-finance, and sustainable agriculture. Institutional investors, notably North American and European development finance institutions, pension funds and endowments have played a leading role in the development of impact investing. Under Pope Francis, the Catholic Church has witnessed an increased interest in impact investing.  

Impact investing occurs across asset classes; for example, private equity/venture capital, debt, and fixed income. Impact investments can be made in either emerging or developed markets, and depending on the goals of the investors, can  target a range of returns from below-market to above-market rates.

Impact investing is the key to creating sustainable jobs, advancing education, improving healthcare and funding the expansion of non-profit organisations that support the most vulnerable.

We must therefore increase impact investment to combat unemployment, reduce social inequalities and preserve the environment.

Historically, regulation and to a lesser extent, philanthropy was an attempt to minimise the negative social consequences (unintended consequences, externalities) of business activities.   However, a history of individual investors using socially responsible investing to express their values exists, and such investing behaviour is usually defined by the avoidance of investments in specific companies or activities with negative effects. 

Simultaneously, approaches such as pollution prevention, corporate social responsibility, and triple bottom line began as measurements of non-financial effects, both inside and outside of corporations.

In 2007, the term  impact investing  emerged. A commitment to measuring social and environmental performance, with the same rigor as that applied to financial performance, is a critical component of impact investing.

In developing countries, we need to boost impact investment to finance the growth of small and medium-sized impact-driven businesses. SMEs make up 90 per cent of businesses and 80 per cent of jobs in Africa, but they are struggling to keep afloat. Impact investing provides them with a critical lifeline, protecting lives and livelihoods.

We must demand that companies publish audited financial accounts that reflect their social and environmental impact. Impact accounting will provide the transparency needed to hold businesses accountable for any harm they cause, and reward them for the positive impact they create.

To emerge from this crisis sooner and in a better position to meet difficult challenges, we must shift our economies from profit alone to both profit and impact. We can help transform our economies by requiring company directors and trustees of pension funds and charitable endowments to consider both profit and impact in their decision-making.

We are at an historic crossroad. There has never been a greater need or a better time to bring impact to the centre of our economies and build the kind of world we want to live in. And this idea has already started gaining momentum:

UBS which  is a global firm providing financial services in over 50 countries. UBS, which manages $2.6 trillion in assets, is now advising private clients to opt for sustainable investments over more traditional options.

The Global Steering Group (GSG ) for impact investment is actively working to achieve a just and impact-led recovery to benefit all people and our planet.

The GSG and the wider impact investing movement have started working towards these actions, including many who have now added their name in support of these objectives. We call on everyone - governments, citizens, consumers, investors, companies and philanthropists - to support the implementation of these key measures and pave the way to a faster recovery and a fairer, more sustainable world.

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