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John Coxon

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Economics

Impact Investing

May 19th, 2016

Impact investing is a relatively new concept in regards to funding social outcomes. Impact investing may take different forms, it may be a direct investment, it may be in the form of a social bond or it may be targeted funding. The difference between investment funding and traditional donor/grant funding is that the investors expect a return upon their investment, in addition to the social outcomes.

The challenge for impact imvestment at present is that it remains a concept and outside of social bonds, which have a questionable future, there are few frameworks for developing and implementing impact investments. This means the non-profit organisation needs to be creative and proactive at building both the framework and the relationships.

Like all alternative funding options, impact investing is not a silver bullet for those facing funding shortfalls. Providing investors with a return on investment while also achieving social outcomes imposes an additional level of responsibility and requires all involved in the process to full understand what needs to be done to achieve the dual outcomes. This can create tension within an organisation, especially with those that believe social agencies should not seek to reward investors.

Investors also will take a greater interest in the the non-profit organisatio, the quality and effectiveness of its board and management, the design of its services and program and how effectiveness is monitored and evaluated. Both parties need to work constructively through different perspectives and understanding.

Impact investing differs from corporate sponsorship. Companies will often sponsor an event or program without any expectation of specific program outcomes. The benefit to them is the advertising exposure and the feel good factor. While sponsorship may be driven by marketing executives; impact investing will be driven by the board and financial investment team.

All this may give the impression that impact investing is for large, national charities only. Those with the resources and a clearly defined track record, along with history and recognised brand. Certainly all those aspect will be attractive to potential investors. At the same time there is considerable potential for impact investment by small to medium business enterprises or even groups of individual through crowdfunding, for example. One option might be for complimentary service providers to team up, share resources and offer investors a holistic solution.

Be prepared to be engaged with impact investment for the long term - both investors and recipients. Learn about how impact investing could benefit your organisation. Identify potential partners. Have initial conversations with potential investors. Focus initially upon building relationships. Investments follow trust and confidence. Seek advice and commence a learning process within your organisation. Results will not occur overnight.