Impact Investing

It is a type of economic activity that sees profit not only in the very short term at the expense of environmental and/or social effects.

Why does the financial community talk so frequently about impact investing?

Why Impact Investing has become so important for any investment decision and strategy for all major Portfolio Managers?

Because, after more than 50 years, of Investment Bankers looking for real assets not duly monetized, where they could extract an amazing amount of value doing very little (naming tapping into Private equity funding or Stock Market), now this type of approach is becoming increasingly difficult to apply.

So, now we are going back to the basics, focusing on creating real value at 360 degrees: the pressure is higher and higher, like it has never been before.

For decades (both the 1980s and the 1990s), it was enough for investment bankers to find a company that was not on the capital market and, by bringing it to the Capital Market, it was fairly easy and straightforward to create value for all stakeholders.

However, now things have become more complicated.

In fact, as a matter of fact, the above described strategy has now been active for several decades.

And, moreover, environmental and social inequality issues have become recurrent both in the newspapers and in the economic-financial literature, with a drop-by-drop communication strategy that we have never been exposed to before.

So managers, investors, consumers and institutions etc … can no longer turn their attention on something else.

And then, even managers, investors, etc … can no longer turn the other side.

The real Impact Investing is the for-profit in its best form.

The real Impact Investing is the for-profit in its best form.

Impact investing is for profit, but it is a type of economic activity that does not see profit only in the very short term and to the detriment of environmental and / or social effects.

Those who embrace the paradigm of impact investing understand that:

Profit is fundamental;

Profit is fundamental both in the short term and in the medium term;

In the medium term it is obtained by presenting itself on the market with a value proposition that is attractive to all stakeholders, namely for consumers, for its employees and for investors.

Consumers 1.0: customers are now sensitive to the amount of plastic we find on the beaches, to the quality of the air we breathe, to the quality of the water we drink, to the quality of life that we have in the tangejet queues (sigh!) .. Impact investing focuses on all these issues, with the awareness that value must always be created for those who have invested in a company.

Consumers 4.0: A concern that we often find in our investors is that, in order to be impact, we must take into account the product costs higher than the market average and certainly higher than the most efficient and low cost competitor.

Being impact often implies that one cannot be low cost, but the reward that is given to these activities is real and substantial;

Employees: today, in the battle for talent and therefore, ultimately, in the battle to remain competitive, we must know how to present ourselves as a company that knows how to do good: good to its customers/consumers, good for its employees, good for the community within which the company moves.

Talents are no longer willing to work for companies that make our cities less livable, our seas more polluted, etc …

Talents, also called “brains”, those who can choose what to do, choose activities with a high social and environmental impact.

So what do we do in practice?

Impact investing is NOT non-profit, it is not a third sector.

It is investing and giving returns, even above average, in healthy companies that work in a healthy way, for a healthy environment.

Act in impact investing, ultimately, means investing in:

  • health companies, in health devices (that help blind, deaf, … or sick people or elderly people);
  • agriculture (putting – finally – an end to intensive agriculture);
  • increase in recycled products, in companies that reduce “useless” logistics, leading to a reduction in co2 consumption;
  • companies that change cities and make them smart-city, …
  • Impact Investing is NOT just CSR (Corporate Social Responsibility).

It is not just communicating that you are good, but it is acting on your business model or on the value chain or on products to make them high impact.

This is the real paradigm Impact Investing: IMPACT business models bring healthy innovation and healthy innovation brings profit, profit attracts capital and capital leads to even greater size and impact.

Read also the article Impact Investing – The scientific paper of IHM