A Call for Big Finance to Commit to Impact Investing
Sertac Yeltekin provides a think piece on how to generate intentional social and environmental impact as well as financial gain.
“How do we make impact investing mainstream while preserving its essence – that is to generate intentional social and environmental impact as well as financial gain?
According to the Global Impact Investing Network (GIIN), Impact investing has grown into a $715 bn sector over a decade, but compared to traditional finance it is still a nascent and marginal sector. Nonetheless, it is worth understanding its composition, how and by whom it is financed, where the investments go and what instruments are used.
First of all, the investment total includes a mix of instruments – debt and equity. Second, it accounts for both emerging markets and developed markets. Third, there seems to be little indication of whether it does what it preaches. Let me take it piece by piece.
Product labeling concerns
Debt and equity instruments are multi-faceted and complex, and the products in this space cover anything from infrastructure to climate bonds. And as more traditional players come into the market the amount and sophistication will increase, but so will the opaqueness.
So even as the sector becomes more mainstream, the question arises: do these new entrants really deliver the results that the sector promises? The big players are wont to treat impact investing as a pure asset class to promote, a new business line to develop and a new box to tick. They may not be so concerned about the social impact.
The need for greater domestic resources
At a recent impact leadership conference organized by the Central Bank of Indonesia, one of the studies presented pointed out that 93% of investors are Development Finance Institutions (DFIs) while only 7% are local. And the total amount invested in impact over the last seven years is $256 ml. This is hardly encouraging. Local investors are not engaged. The market depends on foreign aid and the good will of philanthropy.”
Key points include:
- Product labeling concerns
- Domestic resources
- Building local impact investing
Read the full article, It’s time for Big Finance to fully commit to impact investing. Here’s how., on TechforImpact.Asia.