日本語Social impact investment is no longer rudimentary. The word social impact investment gained its traction many years ago, and it still continues to increase its momentum in all corners of the world today. At the same time, it is a blessing that fintech such as crowdfunding has brought us (i.e. non HNWIs) much closer to the idea (and option) of social impact investment. Perhaps we’re closer to it than ever before.
What we already know about investment in general is that it comes with ‘return’ and ‘risk’.
Risk, Profit and Loss crossword
(Photo credit: DnB Partners)
Firstly, return is a ‘benefit’ that an investor receives from an investment of some forms of resource.
Secondly, risk is ‘uncertainty’ that an investment brings to the future – as the gain or loss of benefit to an investor is in the future. (Shin, 2009)
In traditional investment, this ‘return’ is usually viewed as ‘financial’ or ‘economic return’, and ‘risk’ is calculated as the degree of ‘financial’ or ‘economic’ loss of investment.
(Photo credit: Wharton)
On the contrary, when it comes to social impact investment, risk and return can be divided further into two categories.
As for return, social impact investment brings (1) economic return and (2) social return.
Economic return can be gained if the invested company generates profit out of its business operation that brings social good. This social good can now be seen as ‘social return’ – which is positive social outcome as a result of its business operation.
The economic return is often seen as consessionary return as this is not equivalent to market-rate return. Various literature and industry reports say it brings ‘social return’, and some investors and investment funds therefore have occasionally seen social return as an ‘added-value’ to their investment.
Yet more recently, leading organisations in the UK such as Big Society Capital & Resonance UK Ltd. and major social impact investment funds in Australia are starting to call this ‘impact return’ – absolute return rather than merely added-value.
(Photo credit: Symplectic)
What’s more important here, is that these organizations all share the idea of ‘No impact, no investment’. It is almost impossible to demonstrate empirical certainty to return when it comes to any types of investments, but they all emphasise that without impact, they wouldn’t invest. This indeed is what’s called risk.
In social impact investment, we observe (1) economic risk and (2) impact risk.
Economic risk is explained above, but what is significant here is uncertainty to the degree of (or whether or not) social impact (is) generated. In other words, if you take away the words ‘social impact’ out of ‘social impact investment’, it is just left with normal ‘investment’. The impact risk as we call it in social impact investment is that there may be no impact in social impact investment.
It is important to keep in mind that no matter how much economic return you may gain as an investor, without social impact return, you’re simply practising capital market investment.
These two categories of return and risk are probably what make social impact investment interesting and even more appealing than any other investment concepts.
References:
- Shin T, 2009 “15 sai kara no Finance riron nyumon” Diamond Publishing.
- Personal interviews with
- Simon Rowell and Camille Parke from Big Society Capital (UK)
- Daniel Brewer from Resonance UK Ltd (UK)
- Daniel Fitzerald from Small Giants (AUS)
- Andrew Tyndale from Grace Mutual (AUS)
- John McKinnon from John McKinnon Foundation (AUS)
- Daniel Madhavan from Impact Investing Australia (AUS)
- ARUN Partners (JAP)
