Updated: Jun 21, 2020
During my internship at Maimon Wealth, I learnt a lot of new things. One of these is the concept of impact investing, which I’m going to explain below…
What is Impact Investing?
Impact investing is the idea of funding companies and organisations that generate social and/or environmental benefits, alongside a financial return. Effectively, it allows investors to take charge of their wealth as an extension of their identity and values.
As Sir Ronald Cohen stated, “If in the 19th century and before investors measured financial return, and in the 20th century they measured risk and return, [then in] the 21st century, we’re already measuring risk, return, and impact.”
Arguably, there are three areas of impact investment:
Socially Responsible Investments (SRIs): These are investments that are assumed to have no negative consequences. Generally, they have been screened to avoid investing in companies that are causing negative environmental or social impacts. Socially responsible investing targets companies that adhere to good environmental, social, and corporate governance (ESG) practices. It is proven that SRI investors can earn the same financial return as a traditional investor.
Mission-related investments (MRIs): These are investments made with the goal of having a positive impact while also generating a financial return. MRIs are typically funded by foundation endowments.
Program-related investments (PRIs): These are investments that have a charitable intent as their primary purpose, with financial returns as a secondary goal.
Israel as an Impact Investing Case Study:
Israel has long been regarded as the Start-up Nation. Over the past decades, it has witnessed small businesses develop into global conglomerates. Recently, however, with an increased awareness of social and environmental sustainability, a trend has emerged – impact investing. Companies such as Impact First and TechForGood are at the forefront of this phenomena, as they seek to build a bridge between Israel’s unrivalled penchant for technological innovation, and the expanding global interest in the impact investment market, in order to generate sustainable global social impact, and earn market-rate returns.
As aforementioned, Israel and Israeli start-ups are at the epicentre of this movement towards more environmentally-friendly investment. Since 2016, the size of the impact investment market has more than doubled from $130 million USD, and it is predicted that by 2020, $468 billion USD will have been invested in impact worldwide. Tech start-ups are currently looking at ways to reduce the $1 trillion USD of food wasted each year, to eliminate hunger and poverty, to cut down on carbon emissions, and to create a sustainable agricultural model. What makes Israel such a supportive ecosystem for start-ups is “its entrepreneurial approach to risk and its attitude towards what is possible (everything) and what is not (nothing).” In this way, Israel is well on its journey from Start-up Nation to Impact Nation.
This new development in the sector of impact investment culminated in the taking place of the 2019 Israel Impact Summit, which happened last month. You can read more about it by clicking here!
Also, the following link provides a report of the current status of the impact investment market in Israel:
Finally, why is this interesting for us? Well, millennials have been proven, as substantiated by this Forbes article, to have a greater tendency to invest in environmentally and socially responsible companies, and this seems to be the way that the investment world is heading towards. So, is impact investment the way to go? Let me know what you think.
If you have any questions, feel free to comment below!