Philanthropic investment, also known as impact investment, refers to investments made into companies, organizations and funds with the intention to generate measurable social and environmental impact alongside financial returns. It plays an increasingly important role in mobilizing private capital to address pressing societal challenges. Key players in this area include foundations, family offices, corporations and individuals who aim to align their wealth and values for positive impact.
Purpose and objectives of philanthropic investment
The primary purpose of philanthropic investment is to create positive social or environmental change, in addition to financial returns. Its objectives include improving lives of underserved communities, empowering women and girls, improving health and education outcomes, advancing clean technology solutions etc. By channeling more private investment capital with intentionality, the philanthropic investment movement hopes to accelerate progress on sustainable development goals.
Major types of philanthropic investments
There are several major types of philanthropic investment vehicles. Equity investment into social enterprises is a popular approach, providing risk capital to early stage companies with embedded social missions. Fixed income products like green bonds that finance environmental projects are also gaining traction. Shareholder engagement strategies advocate for corporate reform and accountability on ESG factors. Fund investment into vehicles with impact screens help direct more capital. Program-related investments by foundations provide flexible financing to nonprofits. Many opt for a portfolio approach combining various products for exposure and risk management.
Growth of the global philanthropic investment market
According to the latest sizing by the Global Impact Investing Network (GIIN), the global impact investing market reached $715 billion in assets under management in 2020. From 2019 to 2020, the market experienced a growth rate of 42% in assets under management. Currently over 70% of the total market is in public equities, though private capital also saw a robust increase recently. The market is projected to continue its high growth trajectory as more investors adopt environmental, social and governance (ESG) factors and impact into decision making.
Challenges and opportunities
Some key challenges philanthropic investors face include lack of quality investment opportunities, difficulty measuring and tracking impact performance, lower financial returns compared to mainstream investments etc. However with the growth of intermediaries, innovative business models and better reporting standards, many of these obstacles are being addressed. There are significant opportunities to unlock new capital and participation by educating more wealth holders on strategic philanthropic capital deployment for systemic change.
In conclusion, philanthropic investment integrates intentional social and environmental impact into investment decisions, helping direct more private capital to serve public good. With expected massive wealth transfer to millennial generation who deeply care about responsible investment, the field represents major potential for growth.