Corporate Impact Investing Estimated At $2.4B
November 16, 2016 Mark Hrywna
A third of companies globally are “somewhat” or “highly” active in impact investing with large corporations investing $2.4 billion annually – a level that’s expected to grow over the next decade. Total giving by companies that are active is almost twice as much as those who are not active, according to a new pilot study released this week.
The study, “Investing with Purpose,” is the first time that the corporate role in impact investing has been analyzed in depth, according to a press release from CECP, the Committee Encouraging Corporate Philanthropy, which conducted the study with support by Prudential Financial, Inc. New York City-based CECP will expand on the pilot study to fold it into its ongoing study of environmental, social, and governance (ESG) practices, with a focus on social.
Impact investing is commonly referred to initiatives and ventures designed to achieve financial returns in addition to positive economic, social or environmental impact. The financial services industry is one of the most deeply involved in impact investing but active engagement also includes manufacturing, consumer essentials and technology.
Median total giving for companies active with impact investing was about $25.7 million compared with $15 million for those that do not.
Impact investing is the exception rather than the norm but CECP expects the practice to grow along with the broader market for impact investing globally. A separate study by JP Morgan Chase and the Global Impact Investing Network (GIIN) projected the entire impact investing field to grow from $60 billion to $2 trillion by 2025.
“We are at the start of seeing something that has the power to change the world,” CECP CEO Daryl Brewster said in a press release. “Impact investing is the cutting-edge tool for companies looking to achieve financial, environmental, and societal goals all at the same time,” he said. “We expect more leaders in corporations to leverage their companies’ resources and competitive advantages through impact investing. Ultimately, this will make a positive impact in the marketplace and in people’s lives.”
The report offers guidance to companies interested in impact investing, including incorporating it into a company’s annual strategic planning process, partnering with umbrella organizations in the social enterprise field, collaborating with competitors on common problems, and working with external investors.
The study outlined six approaches and case studies that companies are taking in impact investing:
- Direct investments. When a company provides funds for a social enterprise, such as Campbell Soup Company’s acquisition of Plum Organics;
- Self-managed funds. When a company creates a captive fund or investment company, such as Cisco Ventures’ investment in Husk Power Systems, a company that turns rice husks into energy;
- Third-party funds. Investing through a syndicate or fund as a limited partner, such as 3M’s $5-million loan to the Closed Loop Fund, which aims to improve recycling in municipalities;
- Strategic alliances. Two companies combine for strategic non-financial partnerships or joint ventures with social enterprises. Vodafone and Roshan, Afghanistan’s largest telecommunications provider, formed an alliance that involved a profit share model to use M-Paisa, a mobile payment platform;
- Accelerators and incubators. Companies providing support for a specific project or new venture, such as mentorship, office space, or technical support; and,
- Corporate foundations making program-related investments – providing either working capital through loans, loan guarantees or equity investments –
through their charitable foundations.
The three approaches with the greatest potential for impact at scale, according to the report, are direct investments, corporate venture capital self-managed funds, and investments in third-party funds.