The Financial Case for Impact Investing

Impact investing is a burgeoning field within the financial community, featuring companies and funds that are generating financial returns for investors while also creating measurable social or environmental impact. Yet, there remains a lack of clarity around impact investing. The purpose of the Capstone project was to serve as an impact investing field map for advisors and investors who wish to learn more about the space, or who may be interested in allocating funds to impact companies. The final report aims to illuminate the space, and to provide clarity towards the many questions around this nascent field.   

In the final report, the Capstone team began with a broad overview of impact investing’s origins and evolution, and attempt to establish what constitutes an “impact investment.” The team then granularly examined five categories of sectors that are particularly attracting investors’ attention – for good reason. These sectors are healthcare, consumer products, social finance, energy and environment, and community development. Each sector analysis surveys the unique impact investment characteristics of each given sector, and outlines the opportunities and risks associated with such investments. To further illustrate each sector’s distinct impact investment qualities, the report offered case studies of successes and failures. Finally, the report identified those trends that span all of the aforementioned sectors, exposing a broad view of both the opportunities and risks in the impact investing space.  

The team found, ultimately, that there is a clear need and market demand for the financing of impact companies. Factors related to population growth, innovation, macroeconomic forces, technology proliferation, and government policy present opportunities for investors looking “to do well by doing good.” At the same time, investors must not overlook the very real risks associated with impact investing, which include the instability of emerging economies, a perceived lack of strong leadership in impact funds and companies, and a still-developing measurement system to accurately assess an investment’s true impact. Yet, through all this, one theme clearly emerged: impact investors are increasingly proving that financial returns and social returns, once believed to be at odds with one another, can align.