If the allure of the finance industry was tarnished in the crisis, impact investing could be the saviour that steps in to solve the social problems that world governments are now ill-equipped to handle alone.
The world’s wealthiest individuals are now evaluating their investments, and putting them to work alongside government programmes to help solve economic and global social issues.
Impact investing, providing finance to non-profit or for-profit organizations and companies that will have a social impact, is proving popular with foundations, family offices and high-net-worth individuals, and an increasing number of products are emerging to help them fulfil their philanthropic endeavours.
It’s a step beyond donating.
Sustainability is key, for one. And impact investing offers financial returns. UK and US firm Social Finance is hoping to prove that returns can be made by funding such sustainable programmes. It is in talks with a number of US state governments and is approaching the capital markets with social impact bonds. The instrument would be issued by Social Finance and the capital would be used for programmes to reduce the public cost of chronic homelessness or other social problems.
Private banks, however, are struggling with how to readdress their advisory models to one that encompasses investment advice and philanthropic advice. The new model of thinking about where returns can meet social gain is not a part of the regular private banking model, and it means a big overhaul for the industry.
“The industry has employed people to help you invest money, and people who help you give money away," says Antony Bugg-Levine, the chief executive on Nonprofit Finance Fund in New York. "There is no middle ground."
For the full story, check out the February edition of Euromoney magazine.
