Can you do well while doing good? This is the ultimate question for a marketer in the public and social sector. Doing well in the public and social sector means more than just money. Earning money leads to sustainability and scale, two qualities that communities desperately need and funders desperately seek.
Marketers must create goods and services that offer value for their customers, their organization, and their funders or investors. Increasingly, investors are looking for goods and services that also explicitly offer value to society at large. The emerging discipline of impact investing aims to deliver financial results for funders and social impact for consumers and communities.
What Is Impact Investing?
Impact investing means investing money in the creation and distribution of social goods, with the twin goals of generating measurable social and environmental impact and an acceptable financial return. Impact investing focuses on social goods such as
- Financial services and microfinance
- Food and agriculture
- Information and communication technologies
- Water and sanitation
It’s not enough to simply invest in, say, energy companies such as BP or Shell and then claim that you hold impact investments in energy. There needs to be a component of serving individuals and communities in a positive way. It may mean creating access to products and services for groups that were previously ignored, such as microfinance for customers with collateral and capital needs considered too small for traditional banks. It may also mean creating new goods and services that are more sustainable or environmentally friendly, such as solar power kits for off-grid users.
Impact investors come in several types such as investment fund managers, foundations, banks, pension plans, and wealthy families. Some of these, such as public pension plans, are part of the same sector, so it makes sense to use funds to strengthen innovation in the sector.Familiar organizations participating in impact investing include Axa, Ford Foundation, Prudential Financial, and Omidyar Network.
What is the Rate of Return of Impact Investing?
A recent report by the Global Impact Investing Network surveyed the portfolios of 62 funds involved in impact investing. These funds managed $35 billion in 2015. That’s a lot of potential impact. The amount of money they are taking in to invest is growing 18 percent per year. That means more people want to get into impact investing.
It’s easy to see the attraction, too. These investors are expecting a return of 17-19 percent for equity and 5-6.5 percent for debt. Those are competitive and attractive returns in most any market. The investors report that their investments meet their financial expectations 85 to 95 percent of the time, and meet their impact expectations more than 95 percent of the time.
How Can My Organization Tap Into Impact Investing?
Designing and pricing for a positive financial return may seem impossible or anathema in the public and social sectors. On the other hand, Harvard professor Michael Porter and the authors of The Business Solution to Poverty say that doing so is the only way to scale your work and truly impact your community. If you don’t pursue positive returns from your positive work, the for-profit sector increasingly has investors willing to give a go.
Positioning your organization as an impact investment means
- Designing your goods or services that have a positive impact.
- Pricing your goods and services so that they create a positive financial return while also fully funding your organization.
- Promoting the positive impact your organization has, through organizational narrative and other means.
A marketing mindset, applied to the public and social sectors, gives you the tools to deliver the financial and social returns that impact investors seek.
(Image courtesy of Power Africa)