Impact Investing – what is it good for?

September 2016

Impact Investing – what is it good for? Absolutely everything.

Richter was a proud sponsor of the 2017 Toronto Global Forum and hosted a forum discussion that related to the day’s theme of “Global Economy, Finance and Innovation”. As a financial advisory firm that specializes in tax, accounting, wealth management and consulting work, narrowing down our choice of topic from such a broad and diverse field was tough, to say the least. With so much going on in the world, we considered holding a session that focused on transfer pricing or the future of accounting as more than a commodity-based service, the list went on and on. But when we started to really focus on what mattered to the future of this field, what was the most exciting and emerging of the trends, and what best represented Richter’s core values, the choice was clear: social entrepreneurship and impact investing. These emerging fields are as unique as they are relevant and accessible to all businesses and business owners.

Any business can choose to make this type of investment; and all businesses should bear the duty of acting in a socially responsible way. It’s a growing sector that traditional corporations, business leaders and politicians should take note of. Highlighting this at the Forum was for us, an easy choice. Thus, “Bringing Impact Investing and Social Entrepreneurship to the Mainstream” was born.

What is impact investing? According to the Global Impact Investing Network, impact investments are investments “made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”[1] Why? “The impact investing market offers diverse and viable opportunities for investors to advance social and environmental solutions through investments that also produce financial returns.”[2] Basically, investing in what’s good for the environment and/or our communities is also good for your financial goals as far as these investments are concerned. This seems like the definition of ‘win-win’ which is probably why it is also now moving mainstream.

Impact investing goes hand-in-hand with social innovation. Largely, this is about identifying an issue and harnessing innovative methods in order to fix said issue, while also driving economic prosperity. It’s also seeing tremendous growth. Research firm The Monitor Group issued a report in 2009 that estimated that the impact investing industry could grow to roughly $500B US in assets in the next decade.[3]

Going beyond investing are social enterprises – using a business model to address social issues, and taking the profits from said business venture or product sales, to invest in solving the issues of focus. Social enterprises are now just one side of the spectrum of social responsibility. As we see it, all businesses are social; the degree to which they make sustainable choices or focus on giving back just marks their place on this spectrum. While some are entirely considered social enterprises and commit almost all profits to social causes, some are in the middle, and their social conscious plays a factor in their choice of suppliers, culture, or growth objectives; while at the other end, for-profit entities may simply focus their corporate social responsibility initiatives on a cause by donating time or money, while preserving most profit for shareholders or business growth.

The reasons why these two fields are growing in popularity are varied. We may attribute the growing focus to the rise in social media and access to information. As Mr. Groisman* puts it, technology helps put the emphasis on social issues: “with more people knowing about a problem, the odds of someone getting up and saying. “I want to do something to stop it” are greater.”

The millennial generation on the whole is also uber-engaged in social change – and they are using their consumer power to sway companies to pay attention, too. A Nielsen report found that “73% of global millennials are willing to pay extra for sustainable offerings.”[4] A company that is considering how much emphasis or spend it will put into socially responsible choices going forward should really take note of this, especially as millennials already account for an estimated $1 trillion of consumer spending in the US.[5] Mr. Groisman summarizes this sentiment nicely: “corporations should have in their best interest the communities they are in, since that will improve long lasting business relationships in those areas as well as [pave] their way to a relationship with the people who benefit from the corporations’ involvements in their communities. Those very communities are [also] where the corporation will find its employees and customers.”

It’s clear these fields are becoming more mainstream. Focus is not only at the consumer level, but investment in these enterprises is also being made from the government level as well.[6] And when it’s asked for by the masses, supported by the government, helps your reputation and your bottom line, and gives back to the wider community**, what’s not to love?

*As part of Richter’s own social responsibility focus, we created the Richter Innovation and Social Entrepreneurship program, which was created to assist aspiring and inspirational social enterprises in growing their businesses. We invest in these organizations by donating time, expertise and business advice, pro bono. In addition, we offer the Richter Entrepreneurship Entrance Scholarship, through Marianopolis College. This year’s recipient is an incredible and enterprising young man named Benjamin Groisman that has developed not one but two ground breaking enterprises: one, committing to decrease the instances of texting and driving, the other, a drug to combat breast cancer. We’d like to thank Mr. Groisman for taking the time to lend his insights to this article.

**As with any and all investments, there are still risks associated with making these types of financial choices and commitments. Richter does not endorse nor promote any type of investments. These decisions should be evaluated carefully and on an individual basis, given one's financial situation and risk appetite.

About Richter: Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedIn, Facebook, and Twitter.