Is It Time for Impact Investing to Just Be Called Investing?
Contributed by: InBC Investment Corp.
Impact investing, while still accounting for a smaller portion of the venture market, is gaining momentum and transitioning into the mainstream. Many investors invest for impact without intentionally doing so and others — while not calling themselves impact investors — are strategically targeting impact-focused opportunities. As investment trends shift toward focusing on business sustainability over short-term gains, we are seeing more portfolios resembling those of impact investing. With the line between impact and traditional investing becoming blurred, is it time for impact investing to just be called investing?
Venture capitalists (VCs) invest in the most promising, innovative companies showing potential for market success. From companies innovating for the future to those driving climate action, both impact investors and investors who don’t consider themselves impact-focused are interested in businesses solving the most pressing issues of the current day, issues people care about and the solutions they are willing to spend their dollars on.
We are also seeing a shift in the way investors invest, both in response to macro-economic conditions and as a strategic move. Investors are becoming more discerning in the types of investments they make, performing more thorough due diligence and taking less risk. Rather than targeting for rapid growth and a few profitable exits to recoup investments, more VCs are building portfolios resembling those of impact investing, prioritizing sustainable growth and long-term results over valuation.
There are smart reasons for doing this. For one, sustainable business is good business. Impact portfolios can generate a higher ratio of successful ventures over time, and further to that, historic impact fund returns have been catching up to those of U.S. venture capital and outperforming public equities. Instead of chasing the next big Unicorn — which might generate a high return but at greater risk, investors and businesses alike are beginning to see the value of building Zebras focused on sustainable growth and business longevity. This is a change from the previous “move fast and break things” mentality.
Investors looking to minimize risk and optimize for sustainability can adopt strategies such as environmental, social and governance (ESG) as a risk framework, to help identify factors beyond financial ones potentially impacting a business, as well as opportunities for improving performance. ESG, which is concerned with business sustainability, is a strategy already widely utilized by impact investors.
There is a common misconception that impact investing does not consider financial returns. In actuality, impact investing intends to generate measurable social or environmental impacts alongside rather than in place of financial returns. Impact investors recognize that impact and profit are mutually reinforcing; they don’t see impact as concessionary but rather as a driver of financial performance.
InBC’s portfolio companies are doing this. 4AG Robotics is an agritech company reaching domestic and global markets while also creating jobs in rural Salmon Arm, B.C. and reducing food waste in the agriculture sector. Clarius Mobile Health has created a successful portable ultrasound scanner that is increasing accessibility to care for patients. These are just some examples of businesses where the potential for profit and impact go hand in hand.
Companies solve problems and some of the biggest issues we face today are impact related. Whether addressing climate change as a global issue, strengthening the resiliency of local food systems or improving efficiencies in an industry, successful companies exist and innovate to meet where there is need for a solution. With more investors targeting companies making positive impact and building portfolios considering both financial and non-financial goals, it may just be a matter of time before impact investing is simply called investing.
About the Author: InBC Investment Corp. (InBC) is a strategic investment fund created by the Province of British Columbia (B.C.) to invest in growing companies and venture funds generating financial returns alongside measurable economic, social or environmental impacts for B.C. Companies and investors can learn more at www.inbcinvestment.ca