Impact investing is a response to social needs that must be met in our society. Impact investors invest in a wide variety of sectors, including equitable education, affordable health care, sustainable agriculture, affordable housing, green-energy, clean technology, and financial services for the poor. The impact investing market offers opportunities for investors with varied risk appetites and investment strategies.
Addressing the social needs for more effective and affordable health care and education have become two of the most important areas receiving impact investment. Sociologists have found that education has diverged sharply over the last 40 years with growing gaps between the lower, middle and the upper classes, leading to an educational gap between rich and poor. At the same time, nearly a third of people living in poverty have no health insurance of any kind, and the number of uninsured people seeking treatment has increased in 2018. There is much to be done in both spaces.
One of the most important ways to bring real change and lasting health and education impact is to remain innovative and identify and invest in new projects, programs, and solutions that respond to the ever-changing environment we live in. We need innovative business models to find new solutions to address the biggest challenges facing global health and education.
Impact investors have traditionally challenged the view that development is to be reached and guided only by social assistance or philanthropy. Business investments are important drivers for achieving more inclusive and sustainable societies. Today, we see a NEW financing mechanism that brings together funding partners and companies motivated by social returns. While financial return is essential, it should not be the sole focus. Impact investment offers a promising way to mobilize private capital, employees, angels, advisors, VCs, and executives to solve some of the world’s most vexing health and education problems.
A Successful Impact Investment in Healthcare
The chronic shortage of trained health workers in the world’s poorest countries is recognized as one of the most fundamental barriers to good health. So, one of the fundamental goals is to train and support community health workers fully so that they can effectively deliver treatments for common childhood illnesses and provide health education. GSK explores how technology and new business models can be used to transform the way healthcare is delivered in developing countries around the world. They look at how technology can be easily implemented and used by patients to receive vaccination and treatment.
GSK, an innovative and trusted healthcare company, reinvests 20% of their profits back into improving the healthcare infrastructure in developing countries especially in Africa. These investments are seeking to make substantial contributions to the improvement of access to healthcare for 20 million under-served people by 2020. GSK’s goal is to develop new business models that both increase access to healthcare and stimulate economic development in Africa. More than 35,000 children in Mozambique have now been registered in their pilot program. They have improved vaccination rates using mobile phones. Parents and caregivers receive updates on their phones to remind them when vaccinations are due, and in 2017, nearly 200,000 vaccine doses were administered to children using the platform GSK created.
A New Impact Investing Model for Education
Impact investors are also exploring the potential of EdTech. They already love CleanTech and GreenTech, but
what is EdTech? EdTech involves using information technology including tablets, smartphones and computers – working through various media, including social media – to deliver instruction. Its practice involves enhanced learning through computers as well as remote learning and massive online courses, or MOOCs. “Edtechers” in schools, universities and businesses design and produce online classes, tutorials, training programs and exams and then deliver them to students using technology across the world. EdTech is an innovative way to bring education anywhere to ALL.
Venture capitalists are beginning to get excited about the potential of the EdTech market, which is projected to grow to $280 billion by 2018, with the US market growing by 47 percent and the EMEA (Europe, the Middle East, and Asia) countries having projected growth of around 25 percent. For impact investors, the rise of EdTech, with its potential for delivering financial returns at market and near-market rates of financial return as well as non-financial benefits, represents an important entry point for impact investors into the education marketplace. Education, like CleanTech and GreenTech, is popularly considered to be a good thing per se and this makes EdTech an uncontroversial investment, which in turn should make it attractive to many different kinds of socially motivated investors.
Impact Investing’s Growing Importance
Impact investors can definitively play their part in a changing marketplace. As more and more companies attempt to make a positive impact in the society they live in, they are finding great interest in dedicating resources in projects that have a real impact on social change in the health and education spaces. These types of investment can be sustained for a long period of time, and the financial return on investment seems promising. It is possible to differentiate impact investment from any other forms of investment by three guiding principles:
- The expectation of a financial return is balanced by the attempt to benefit society.
- The intention to have a substantial positive impact our society is truly real.
- A long-term commitment to the intended social impact is key.
Impact investment is an important driver for achieving a great company culture and for retaining employees. Since Centennials, under the age of 21, and Millennials, ages 22 to 37 are particularly interested in impact investment, it makes sense for top leaders to understand what this relatively new investment field is and how it works. New consumers are socially engaged and like to work for companies that give back to communities. So, impact investment provides a way for organizations to involve the participation of their employees in achieving positive social changes. They can not only address social needs, but they also they build social programs with their employees that produce greater brand consideration inside and outside of the company.
Impact investing is about generating social benefit alongside financial returns. Impact investing can be profitable and market-rate returns are achievable, but it is also important to note that not all impact investments seek to achieve market rates of return. Some impact investors intentionally target below-market-rate financial returns in order to achieve a specific type of social impact. One of the core characteristics of impact investing must be to measure and report on social performance. Impact investment, both in the form of equity and debt, can be directed both to for-profit and non-profit ventures, as long as they can produce a social or environmental impact and the desired financial return.
As individuals, we will not benefit our lives and our work by denying the reality of the social needs that surround us. Instead, we should recognize that our collective and combined efforts can improve the society in which we live. We all can have a passion for social justice, for fairness, and for making this world a better place. While most surveys confirm that a large and rapidly growing number of people are interested in impact investing, there is still more talk than action. What are we actually doing? Are we really taking actions? As individuals we can encourage our employers to consider investing for achieving social impact. We can inspire top leaders and advisors to foster a greater movement of financial capital into investments that deliver positive social impact.
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