Impact investment and philanthropy: we need to ‘redefine how we all think about returns’

Impact investing, although a relatively new concept, has been utilised by philanthropists and investors around the globe, according to an industry expert.

Amy Bell, executive director and head of principal investments for JP Morgan’s social finance business unit, discusses the concept in a recently published Forbes article. She says that impact investing is “an emerging paradigm shift in philanthropy”.

She discusses the compromise between investment for financial return and the traditional philanthropic values that aim to reap specific social or environmental returns.

“Simply put, impact investing is the deployment of capital with an expectation of financial return, where the success of the investment is also contingent upon achieving a stated social or environmental goal”, she writes.

Bell is under no illusion that financial success takes precedence over a successful change in conditions that can improve the quality of life of groups of people, adding, “If we are not successful in both ambitions, then we do not consider it a successful investment. Impact investing, therefore, represents an innovative way for socially and environmentally-conscious individuals and organisations to invest their capital to improve their communities while earning a return that meets their financial objectives.”

She adds that co-operation between philanthropic funds and the private sector could bring about successful changes to a community, and stresses the need for impact investment to be based on financial gain in conjunction with altruism: “Market-based approaches to critical social and environmental challenges do exist or can be developed, and those interventions can attract private sector capital. 

“This provides a significantly larger, complementary source of capital alongside of philanthropic budgets and increasingly limited public sector resources.”

Bell concludes by calling for a change attitudes towards investment, claiming we should “redefine how we all think about returns.”

Further reading:

66% of investment professionals unaware of impact investment

Responsible investment terms: what is impact investment?

Philanthropists urged to take more risks and ‘talk about failure’

Impact Investment organisation provides guidelines for governance

The Guide to Philanthropy & Giving 2013