Impact investing: Making money make an impact
With public spending being cut, wealthy individuals are putting more of their philanthropic dollars to work through social-impact investing. Companies are being set up to provide advice and products, and the private banks need to get on board.
When JPMorgan recruited for a position in its social-sector finance group last year more than 1,000 employees applied for the job. At Harvard Business School, social entrepreneurship and impact investing is now the most popular course. Impact investing might be the saviour of a finance industry tarnished in the crisis, stepping in to help solve the social problems that many governments are now ill equipped to handle alone. It is where capital markets meet benevolence. What started as a discussion around philanthropy now has the potential to become an industry in its own right.
Impact investing is, at its most basic, providing finance to non-profit or for-profit organizations and companies that will have a social impact. That might be a loan to a local housing organization or an investment in a company that is developing technologies to combat climate change.
It’s not new by any means. The wealthy have been donating and investing in companies that aim to create positive social change for more than a century. The private equity and venture capital industries, for example, emerged as a result of investments by wealthy European families after the Industrial Revolution.