Impact investing is an extension of socially responsible investing (SRI), which focuses on companies that promote ethical and socially responsible consciousness, such as environmental sustainability, social justice, and corporate ethics. Impact investing goes a step further by actively seeking investments that can create a significant, positive impact.
Impact investing focuses on investing in companies or organizations to create a measurable societal benefit, while still generating a favorable financial return. Impact investing is typically centered around addressing a social issue, such as poverty or education, or an environmental issue, such as clean water.
As of publication, the top five impact investing firms on the basis of assets under management (AUM) are Vital Capital, Triodos Investment Management, the Reinvestment Fund, BlueOrchard Finance S.A., and the Community Reinvestment Fund, USA.
The U.S. Department of Labor released a new regulation in late October 2020 that may limit or eliminate socially responsible investing (SRI) in retirement plans. While the rule was revised to remove explicit references to environmental, social, and governance (ESG) factors, it mandates that fiduciaries of retirement plans choose investment strategies based entirely on how those strategies affect financial performance. This ruling may have a significant impact on funds and investments classified under ESG and SRI.
Vital Capital is a private equity fund with approximately $350 million in assets. The fund invests in developing areas, principally sub-Saharan Africa, in businesses and projects designed to enhance quality of life and offer substantial investment returns.
The primary investment focus of Vital Capital is on the development of infrastructure, housing projects, agro-industrial projects, renewable energy, healthcare, and education. Among the fund’s investments are the Luanda Medical Center in Angola and WaterHealth International.
Triodos Investment Management
Triodos Investment Management is a subsidiary of Triodos Bank, headquartered in the Netherlands, which manages more than a dozen sustainable investment funds. Triodos has been actively engaged in impact investing since 1995 and as of publication has approximately $5 billion in assets.
Primary areas of interest include renewable energy, sustainable food and agriculture (including organic farming), healthcare, and education. Also, Triodos is one of the founding members of the Global Impact Investing Network. Its investments are spread throughout Europe, South America, Africa, India, and Southeast Asia.
The Reinvestment Fund, headquartered in Philadelphia, is a nonprofit community development financial institution. With an estimated $1.2 billion in assets under management as of publication, the fund finances housing projects, access to healthcare, educational programs, and job initiatives.
The Reinvestment Fund operates primarily by assisting distressed towns and communities in the United States. It also provides U.S. cities with public policy advice and data analysis services to assist in developing community programs.
BlueOrchard Finance S.A.
BlueOrchard Finance, with principal offices in Switzerland, operates in more than 80 emerging and frontier markets around the world, including areas in Asia, Latin America, Africa, and Eastern Europe. Created as part of a United Nations initiative in 2001, BlueOrchard Finance was established as the first commercial manager of microfinance debt investment worldwide.
As of publication, BlueOrchard has invested in more than 200 million entrepreneurs around the globe. It provides both debt and equity financing to businesses and institutions, with an emphasis on alleviating hunger and poverty, fostering entrepreneurship, establishing food production and education programs, and working on climate change issues. BlueOrchard Finance has approximately $3.5 billion in assets under management.
Community Reinvestment Fund, USA
The Community Reinvestment Fund, USA was founded in 1988 in Minneapolis as a national nonprofit certified community development financial institution. Its mission is to empower people to improve their lives and their communities.
The Community Reinvestment Fund partners with local private lenders to provide financing capital for community development projects. These include small business loans for the purpose of growing a business, expanding staff, or increasing energy efficiency. But with more than $250 million in assets, along with access to additional long-term loan capital through the U.S. government’s Community Development Financial Institutions Bond Guarantee Program, the Community Reinvestment Fund also provides funding assistance for community housing projects, healthcare centers, charter schools, daycare centers, and small businesses.