Helen Villiers, Investment Director

Thought leadership

Impact Investing – a nice to have or an expectation?

Over the past fifteen years there has been a growing trend in the Private Equity industry for ‘impact investing’ or ‘social responsibility’, with an ever-increasing number of investors, asset managers, and advisors focusing on measuring, managing and mitigating environmental, social and governance (ESG) risks. Now we are starting to see mainstream investors pay attention to their impact too.

So why is this? The value of an investment is no longer just about returns. An increasing number of investors are also calling for their money to make a positive impact on society and the world at large.

A recent survey showed that 90% of millennials (double the percentage of the general investor population) believe that the success of a business should be measured by more than just its financial performance. Those same millennials are set to inherit an estimated $30 trillion of intergenerational wealth over the next 40 years in the US alone – so as the investors of the future, their views are key.

The average age of Board members and Investment Directors at Private Equity houses is coming down, meaning impact is becoming an important topic on both the sell-side and buy-side. To many mainstream Private Equity firms, now is the time to make ‘impact investing’ the norm, as the growing millennial population will leave them with little option but to adapt.

So what is Impact investing?

There is no common convention of what ‘impact investing’ means, however the Global Impact Investing Network (GIIN) defines it as: “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.

But this doesn’t mean the business needs to focus solely on social impact and ignore market-norm financial returns – it’s possible to do both. For example Just Giving have built a platform which is used around the world and helped their users raise over $4.5bn for charity since 2001.  They took an estimated £6m of funding and were sold to Blackbaud for £95m in 2017 – an exit multiple of almost 20x.

In our experience, considering and monitoring impact will often benefit the business as whole – improving productivity, retaining talent, reducing costs and ultimately increasing value.

What’s next?

What this all shows is that impact investing doesn’t need a label, it’s just becoming an industry standard and should be incorporated into day-to-day activities. YFM consider impact from three different angles:

  1. Within our own business such as recycling in the office, converting utility suppliers to green energy suppliers, encouraging flexible working and providing time for employees to carry out volunteer work.
  2. When making investment decisions, impact is considered alongside financial returns when appraising new investment opportunities.
  3. Working with our portfolio companies to ensure impact is on the Board agenda and encouraging an annual impact questionnaire to monitor performance. For example Friska, a chain of food-to-go restaurants, ensure all of their restaurants are powered by 100% renewable energy, all unsold food is donated to homeless shelters in the local community, all onsite waste is recycled or composted with zero going to landfill and all staff are paid above the National Living Wage.

I suppose the take away from this is that impact just seems to be the evolution point now for businesses – previously it was a ‘nice to have’ but now new business leaders and emerging business models are inherently delivering impact as a key focus of their commercial activities.

So the next time you hold a Board meeting or make an investment decision, take a moment to consider how impact can be incorporated and small changes made – perhaps you can have your cake and eat it too.

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