Introduction to corporate impact investing: Part 1

As the scale of the social and environmental challenges (from food insecurity to accessibility of health care) faced by society is becoming apparent, public expectations of corporations have risen. it is no longer enough for companies to simply spend some of their resources on social impact activities to meet regulatory requirements. 

As stakeholders such as investors increasingly consider factors like environmental, social, and governance (ESG) ratings, companies must go beyond siloed corporate social responsibility (CSR) efforts and be able to credibly demonstrate that they are a positive influence on society’s problems.

As they look for solutions and drivers to make a measurable impact, companies are finding creative ways to adjust their core business to serve a greater social purpose. One such way is impact investing, which can complement a company’s existing CSR toolbox, generating strategic, financial, and social returns. 

In part one of two blogs (check out part two here) as we build up to our upcoming webinar on this topic, we cover the basics of corporate impact investing:

What is corporate impact investing?

Impact investing is a form of investing that aims to generate a financial as well as a social and/or environmental return. 

In traditional investing, the goal is to generate maximum returns for shareholders. On the other hand, the goal of impact investing is to generate financial returns in addition to social and environmental ones. It involves investing in a project or organization with a clear social or environmental goal, and then gaining financially when that project or business is successful. Examples of common impact investments include emerging practices or technologies like regenerative agriculture, clean energy, and social enterprises. 

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Pursuing the double bottom line

These enterprises may be nonprofits that require funds to work towards their mission, or for-profit organizations that sell products or services that further a social cause. Such enterprises pursue a double bottom line - the traditional one concerning profits, and an additional one about helping make the world a better place. Companies should be able to deliver on their financial as well as social responsibilities. 

When a corporation engages in impact investing, it also expects a strategic return, which could come in the form of access to new products, services, technology, intellectual property, markets, or even new business models. In these cases, corporations may expect a below-market financial return in exchange for strategic benefits. Thus, impact investing allows for more flexibility or complexity in goal setting and evaluation than traditional investing, which is only concerned with the traditional bottom line.

Companies such as Schneider Electric and Patagonia have demonstrated the efficacy of corporate impact investing. Schneider Electric and its employees finance the Schneider Electric Energy Access Fund (SEEA), which makes equity investments in social enterprises combating energy poverty in Sub-Saharan Africa and Europe. In addition to financial support, Schneider Electric employees provide non-financial support through corporate volunteering.

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Improve brand perception through impact investing

Social impact investing also helps build or elevate your company’s brand. Customers dislike false claims about your company’s social and/or environmental impact, also known as greenwashing. 

However, the value of impact investing is that it allows you to credibly demonstrate a return on your investment while crafting a brand story that centers your company’s purpose while staying true to your core beliefs. A good example of this is Patagonia, which has built an attractive, transparent brand identity while very credibly furthering its stated purpose of increasing environmental sustainability. 

Are you intrigued by corporate impact investing and think your business can benefit from it, but don’t know where or how to start? Learn how to get started by registering for our free webinar featuring impact investing experts Marius Ehrlinspiel from Wider Sense and Ryan Grant Little from RGL Strategic!

Stay tuned for the second part of this series of blogs, in which we discuss the many benefits of corporate impact investing and how you should formulate your impact investing strategy.
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