Why impact investing?
Private trusts, foundations, family offices and wealthy individuals are among the most active participants in impact investing and for good reason.
For family offices, there are many motivations for engaging in impact investing. In addition to contributing to a more sustainable society, impact investing provides an opportunity to unite families around common values and positive legacies, as well as to engage a younger generation in the leadership of a family office.
For charitable trusts and foundations, impact investing provides a unique opportunity to increase their social, environmental and cultural impact and align their investments with their mission and values. In addition to distributing grants in support of their mission, trusts and foundations can also invest some or all of their corpus in impact investments. By doing so, they can engage with a wider range of solutions for addressing societal challenges, while also maintaining and growing their endowment for future use.
How does impact investing work alongside philanthropy?
Impact investing is an investment. Unlike a grant there is an expectation of return of capital.
Importantly, it is not a replacement for philanthropy, and there will always be many areas of need which do not lend themselves to impact investing. However, grants and impact investments can complement and work alongside each other. For example, a grant may be the most suitable form of engagement for the establishment of a social enterprise, while an impact investment may be suitable for helping the enterprise grow and achieve scale.
Playing the role of catalyst
Trusts and foundations can play an important role in catalysing and leveraging capital from mainstream investors for addressing social challenges; much larger amounts than they could mobilise on their own.
For example, a trust or foundation may provide an initial ‘cornerstone’ investment into an impact investment or fund, which helps to credentialise and de-risk the investment and attract other investors. Alternatively, as a form of credit enhancement, a trust or foundation may provide a grant, guarantee or ‘first-loss’ capital for an impact investment, which then enables other, more commercial or risk-averse, investors to invest.
This kind of layered or hybrid investment structure that combines different types of investors with different rates of risk and returns holds enormous potential for harnessing and channeling more capital towards achieving greater social and environmental impact.
Examples of impact investing
There are many different examples of impact investments which philanthropic trusts, foundations or family offices have invested in, including direct investments and investments in funds:
- Accessing a real asset that an organisation needs to deliver upon its mission such as a hospitals, housing or water licenses;
- Establishing or scaling up a social enterprise or for-purpose business that generates income;
- Financing program delivery to cover a not for profit organisation’s overheads when it has entered into a ‘payment by outcomes’ agreement (such as through a social impact bond or development impact bond).
How can I find impact investment opportunities?
Impact investments can be made directly into an organisation or via a managed impact investment fund. There are a number of impact investment funds and impact investment advisory firms in Australia; some are listed here.
- From Blueprint to Scale: The Case for Philanthropy in Impact Investing (Monitor Group, 2012)
- Impact Investments: Perspectives for Australian Charitable Trusts and Foundations (Kylie Charlton et al, 2014)
- Field Guide to Impact Investing for Australian Charitable Trusts and Foundations (Social Impact Hub, 2015)
- Impact Investing: A Primer for Family Offices (World Economic Forum, 2014)
- Catalysing Wealth for Change: Guide to Impact Investing for high net worth individuals, family offices, foundations and businesses (Julia Balandina Jaquier, 2016)