Defining Impact Investing and Its Core Characteristics
Today, there are many communities around the world in which people do not have access to the luxuries that so many of us take for granted today. Clean water and sanitation are scarce in developing countries. Without clean water, it is nearly impossible to grow food, stay healthy, and live a happy, productive life.
The largest obstacle standing in the way of equitable water access is affordable financing. Impact investing is working to change this by supplying capital that can be used to improve infrastructure and provide clean water access in impoverished communities.
What Is Impact Investing?
Impact investing is one of type of investing that falls into the larger category of sustainable investing. Sustainable investing is an umbrella term used to describe investing approaches that heavily weigh and examine environmental, social, and governance circumstances.
The Global Impact Investing Network defines impact investments as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”(1) In general terms, the goal of impact investing is to produce an impact that helps bring about positive change in the world.
What makes impact investing unique is its potentially to be mutually beneficial for both the investor and the community. Impact investors benefit financially from the exchange while helping to make the world a better place. Society benefits as improvements are made in the environment and community such as developments in housing, healthcare, education, sanitation, agriculture, and water access.
All impact investments share the same four essential characteristics, which include:
- Intention – Intended to create an impact that positively affects environmental and/or social circumstances
- Expected financial return – Investors expect to receive a financial return from the exchange
- Return rate spectrum – Impact investments target financial returns that fall into a certain spectrum. This spectrum ranges from financial returns that are considered below market to those with a risk adjusted market rate.
Measured impact – All progress made by the investment is measured, monitored, and reported.
Overview of the Impact Investing Market
In recent years, the value of the impact investing market has made monumental growth. Between the years 2017 and 2018, the market value doubled to $228 billion in assets.2
The performance of impact investments is wide-ranging. Some impact investors pursue below market rate returns while others choose to invest in market competitive returns. However, it should be noted that investors are usually satisfied with the performance of their investment. According to GIIN’s 2017 Annual Impact Investor Survey, the majority of investors report that their return has either met or exceeded their expectations, both in terms of profitability and social impact.
While there has indeed been notable progress in the market in the past few years, further growth is still needed. The United Nations estimates that a total of $5 trillion to $7 trillion will be needed in order to end global social injustice and environmental crisis issues and reach the Sustainable Development Goals by 2030.
Creating a Better World with Clean Water Access
Impact investments that contribute towards clean water access have vast potential to improve social and environmental conditions in developing countries. Currently, there is an enormous market demand for access to safe water and sanitation. Over 844 million people worldwide do not have convenient and affordable access to safe water.
Safe water is necessary for both the individual and society. Farming, housing development, sanitary health care, disease prevention, and education all become possible with safe water access, which in turn leads to economic prosperity. Providing access to clean water is one of the most effective ways to end poverty and improve global health.
Water Equity’s funds have invested in 13 enterprises across three different countries, enabling safe water and sanitation access for over 400,000 individuals. For more information on our efforts or how to get involved, please contact our office directly.
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"In India, micro, small, and medium enterprises account for more than 80% of total industrial enterprises. According to the last census (2007), 87% of these enterprises did not have any access to finance and were self-financed."
"In India, the market for “toilet loans” has grown rapidly and the loans have high repayment rates. Loans have helped households build more durable latrines by spreading the costs over time."
"For people without access to water, the cost of purchasing from vendors or drilling wells for self-supply can cost 10-15 times more than what is charged by service providers."
"In emerging economies, 1/3 of all healthcare facilities lack a basic water source."
"Extending basic water and sanitation services to the unserved will cost $28.4 billion per year from 2015 to 2030, or 0.10% of the global product of the 140 countries included. Current levels of financing can cover the capital costs of achieving universal access to basic water and sanitation by 2030, provided resources are targeted to the needs."
"1 in 3 people lack access to a toilet."
"1 in 9 people lack access to water."
- See also “What You Need to Know About Impact Investing”, Global Impact Investing Network, https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing
- Ben Paynter, “Impact investing is booming–but not nearly enough to make radical change,” Fast Company, https://www.fastcompany.com/90235420/impact-investing-is-booming-but-not-nearly-enough-to-make-radical-change, 9/21/18