The Global Impact Investing Network's new report, and others like this, which focus on the profitability of impact investments is critically important for purposes of guiding the investment community and other would-be investors in overcoming perceptions of impact strategy as pure philanthropy. There are some remarkable data sets regarding the profitability of dollars allocated to impact investment transactions, when compared to the market performance as a whole. In fact, when portfolio managers who had allocated dollars in impact-driven investments prior to 2008 reviewed their performance results after the economic crisis, they found that their impact portfolio investments dramatically outperformed the broader markets.
Many managers were expecting to see the opposite. What we are seeing in the impact community in some vertical categories is that impact investment can be immensely profitable (even in the short-term to mid-term time frame). These results can be as high as IRR’s in the range of 30%, or better. There are a number of fund managers that I have met with over the last 18 months who understand the value of impact investing and will seek to allocate dollars only in opportunities where a solid financial return is expected to co-exist with a mission outcome. Sectors to watch include energy, infrastructure, water solutions, health and wellness, affordable housing and smart community development.
-- John Shire is Partner in the Corporate Department of the Washington, D.C. office of Seyfarth Shaw and is the head of the Impact Investment practice.