I believe it can and it creates an interesting vehicle from which people can actually invest in their own community.
Impact Investment
Glossary of Terms
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the future of Impact Investment
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Impact Investment
Glossary of Terms
Angel investor
Base of the Pyramid (BoP)
BoP+
BoP Penalty
Blended value Proposition
Community investing
Double (or triple) bottom line
Impact investing
Impact Reporting and Investment Standards (IRIS)
Microfinance
Philanthropy
Social business
Social entrepreneurship
Social performance vs. Social impact
Socially responsible investing (SRI)
Socially Responsible Investing (“SRI”) vs. Impact Investing
Social Return on Investment (SROI)
Sustainable investing
Venture philanthropy
Angel investor
An affluent individual who provides capital for a start-up enterprise, usually in exchange for some stake in ownership equity.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
BoP+
Population with incomes exceeding BoP definition, but who can still benefit from impact investments that expand their access to services and opportunities.
Source: World Resource Institute
BoP Penalty
The BoP often pay higher prices for basic goods and services than do wealthier consumers, either in financial or transaction cost, and often receive lower quality (World esource Institute.).
Source: World Resource Institute
Blended value Proposition
states that all organizations, whether for-profit or not, create value that consists of economic, social, and environmental value components – and by extension, investors (whether market-rate, charitable, or some mix of the two) simultaneously generate all three forms of value through providing capital to organizations. The outcome of all this activity is value creation; that value is itself non-divisible and, therefore, a blend of these three elements.
Source: Jed Emerson, www.blendedvalue.org
Community investing
is defined as capital specifically directed to underserved or economically distressed communities to fund small businesses and vital community services, such as child
care, affordable housing, and health care.
Source: Monitor Institute, IFC, World Bank, Social Investment Forum
Impact investing
Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise. Impact investing occurs across asset classes, for example private equity / venture capital, debt, and fixed income.
Impact investors are primarily distinguished by their intention to address social and environmental challenges through their deployment of capital. For example, criteria to evaluate the positive social and/or environmental outcomes of investments are an integrated component of the investment process. In contrast, practitioners of socially responsible investing also include negative (avoidance) criteria as part of their investment decisions.
Source: Wikipedia
Impact Reporting and Investment Standards (IRIS)
A common framework for defining, tracking, and reporting the social and environmental performance of impact investments. IRIS is a project within the Global Impact Investing Network (GIIN), an organization dedicated to increasing the effectiveness of impact investing.
Source: ImpactBase
Microfinance
refers to the provision of financial services (credit, savings, fund transfers, insurance) targeted at lowincome clients. It enables individuals to make the most of their potential and is a catalyst for access to financial means. Microfinance offers a reasonable riskadjusted rate of financial return and has a positive social impact.
Source: World Bank, IFC, UNDP
Philanthropy
stems from the Greek: “love of humanity.” Popular interpretations today refer to “private initiatives for public good” (J. W. Gardner) or initiatives directed at the “improvement in the
quality of human life” (Robert Bremner). Colloquially, philanthropy is most commonly used interchangeably with charitable giving. However, in recent years, more donors are directing a greater focus on results – on creating sustainable (and measurable) social change. That is the reason why we see the appearance of terms like “venture philanthropy” or “strategic philanthropy.”
Source: World Wide Initiatives for Grantmaker Support
Social business
is a for-profit enterprise whose primary objective is nevertheless to achieve social impact rather than generating profit for owners and shareholders. Social businesses use market principles, produce goods and services in an entrepreneurial and innovative way, and typically reinvest any surpluses back into the enterprise to achieve the social mission. In addition, they are managed in an accountable and transparent way, in particular by involving workers, customers, and stakeholders affected by its business activity.
Source: European Union
Social entrepreneurship
refers to the application of innovative, practical, and sustainable approaches to benefit society in general, with an emphasis on those who are marginalized and/or poor. Regardless of whether the social enterprise is set up as a non-profit or forprofit, fulfillment of the social mission is the primary objective, while financial value creation is a secondary objective and a means to improve the organization’s reach and impact. While social enterprises are financially self-sustainable (generally referred to as social businesses), most include some degree of cost recovery through the sale of goods or services to a cross section of institutions, public and private, as well as to target population groups, though public or philanthropic funding is generally required to sustain some portion of the organization’s activity.
Source: Schwab Foundation for Social Entrepreneurship
An entrepreneur or organization that pursues a double or triple bottom line business model, either alone (as a social sector business) or as part of a mixed revenue stream that includes charitable contributions and public sector subsidies.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
Social performance vs. Social impact
Social performance refers to organizations’ direct inputs, outputs, and business activities that are designed to have a positive social or environmental effect. For example, a business providing affordable healthy school lunches to inner-city students may measure its social performance, in part, by recording and tracking the quantity of ingredients sourced from local organic farms (inputs), the number of lunches served (outputs), and the percentage of student customers whose families live below the poverty line (business activity). Social impact refers to a broader set of outcomes, such as increased income and assets for the poor, improved basic welfare for people in need, and mitigation of climate change. The desired social impact in the example of a business providing healthy school lunches might range from a reduction in childhood obesity to long-term poverty alleviation achieved through improved academic performance. Because social outcomes are more likely to be influenced by external factors, it is often difficult to attribute specific impact to a particular organization’s activities.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
Socially responsible investing (SRI)
describes a values-based approach involving predetermined social or environmental values to investment selection. Early approaches of SRI simplistically screened out investments in “sin sectors” such as alcohol, arms, or tobacco. Returns typically underperformed the market due to the smaller opportunity set of investable stocks. As a result, the mainstream investment community has received this approach with a good deal of reservation, since it seems to force a trade-off between “doing good” and “doing well.”
Source: Center for Global Development (NGO), Social Investment Forum, Credit Suisse
Socially Responsible Investing (“SRI”) vs. Impact Investing
SRI historically described investing in companies, typically through publicly-traded securities, that favor strong environmental and social governance (“ESG”) policies and avoid investment in businesses involved in industries such as alcohol, tobacco, gambling, weapons and others. While socially responsible investors continue to rely primarily on public equities “screening” some also take active positions in voting proxies and engaged management to promote social causes. Alternatively, impact investing describes making investments that proactively intend to create positive impact beyond financial return, in addition to upholding strict ESG
policies.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
Social Return on Investment (SROI)
SROI is an approach to understanding and managing the social impacts of a project, organization or policy. SROI seeks to provide a fuller picture of how value is created or destroyed through incorporating social, environmental and economic costs and benefits into the decision making process.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
Social Return on Investment (SROI)
SROI is an approach to understanding and managing the social impacts of a project, organization or policy. SROI seeks to provide a fuller picture of how value is created or destroyed through incorporating social, environmental and economic costs and benefits into the decision making process.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
Social Return on Investment (SROI)
SROI is an approach to understanding and managing the social impacts of a project, organization or policy. SROI seeks to provide a fuller picture of how value is created or destroyed through incorporating social, environmental and economic costs and benefits into the decision making process.
Source: J.P. Morgan Global Research, Rockefeller Foundation, the Global Impact Investing Network (the “GIIN”)
Sustainable investing
refers to an investment approach that actively recognizes that environmental, social, and governance (ESG) criteria can affect business strategy, financial risk and profitability. As such, the approach integrates ESG criteria into the investment process, considering them
alongside traditional financial criteria, with the objective of generating superior longterm
risk-adjusted financial returns.
Source: Credit Suisse
Venture philanthropy (also known as strategic philanthropy)
is a high-engagement approach to philanthropic giving, analogous to the practices of venture capital in building commercial companies. Donors embracing this partnership approach place an emphasis on funding social purpose organizations that have demonstrated significant potential for impact, and typically match their donation with strategic advice and/or technical assistance to further improve the recipient organization’s capacity to deliver social impact.
Source: EVPA; Morino Institute; Skoll Centre for Social Entrepreneurship
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Club of Amsterdam editor@clubofamsterdam.com |