Money as a change driver

In a fast growing and every time more interconnected world, capitals move all around and is interesting to see how this investing practices have been changing moving from traditional schemes where the only goal was to have the highest return without considering how it was achieved, into a new growing market where investor are finding interesting and profitable to invest in projects focused in solving environmental and social issues.

Two new ¨investing¨ modalities are gaining relevance and spreading through different markets and countries. One is known as impact investment and the other one is call Venture Philanthropy. Even though both have the same target of allocating resources for projects that solve environmental and social issues, both do it using different tools and expecting different monetary results.

Venture Philanthropy it is a small but growing field which main purpose is to take the tools and mechanisms used in regular ventures, and put them in practice to promote non-profit organizations, sustainable star-ups and risk-taking social ventures, which usually struggle to get funds from the traditional financial services.

This type of investment is known by the close attachment of the philanthropist and the social entrepreneur or the area of research he/she is developing. In most of cases are investments with no expectation of financial return or it could be non-financial support like knowledge transfer, networks or coaching. In both cases, there are areas of potential improvement about the measurement of results or achievements made during the project since the main way to evaluate the success is the impact achieved.

A clear example is Ashoka and organization through which philanthropist (mainly private companies and investors) donate money to it and then is in charge of looking for the most drive changers social entrepreneurs all around the world to promote their projects and like this promote a social change.

On the other hand, we find the Impact Investors, that like the venture philanthropist are looking to achieve through their investment, is to promote projects that pursue social and environmental impact but the big difference is that they are actually looking for a financial return that could be below, equal or higher than value markets and because of this, the impact measurement takes relevance for the investor in order to guarantee that financial, social en environmental targets are being accomplished compared to the one settled at the beginning of the project.

Impact investment is spreading every time more along different sector and institutions like banks, pension funds, family foundations and government institutions achieving by 2015 $15 billion in impact investment and for 2016 $17,7 billions and for what could be seen in the graphics, most of the investors interviewed revealed that the returns obtained are the expected one which will be an incentive for this type of investments.

There are still challenges that this tow type of investment face must towards the future panorama in order to become star products. Some of these are: the implementation of more elaborated indicators to evaluate the social and environmental impact, innovation in the product structure to reach a bigger number of investors, bring accurate information about this kind of investment to become a more attractive alternative in the market and government support to the sector.