Founded in 2016, Ceteris Paribus is A student-led economics and finance publication at Davidson College.

Investing With a Conscience

by Shiv Palit

“A social enterprise is a business created to further a social purpose in a financially sustainable way.”  -NESsT

I spent the summer of 2016 as an intern with Shujog/Impact Investment Exchange Asia (IIX). Shujog/IIX is a Singapore-based, not-for-profit organization that helps social enterprises (SE) raise growth capital by showcasing and highlighting their social impacts. Shujog equips SEs with the tools and knowledge they need to measure and report their social/environmental impact, and builds financial accountability to attract investment capital. We also carried out research work on various aspects of impact investing.

According to the Global Impact Investment Network (GIIN), “Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” Impact investing is not charity or philanthropy, but rather investments that provide overall benefits to all stakeholders. GIIN stated that impact investments are in an early stage of development, estimating that $60 billion was allocated to impact investments by various funds in 2015. Additionally, an increasing number diversified investment funds are starting to report “impact” information to their stakeholders.


Core Characteristics of Impact Investing

 Intentionality: an investor’s intention to have a positive social/environmental impact through their investments.

Return on Investment: impact investments are expected to generate a financial return on capital and at a very minimum, a return of the original capital.

Impact Measurements: companies accepting capital from impact investors must be committed to measuring and reporting social / environmental impact transparently.


The biggest challenge of impact investing is identifying SEs that not only have viable business models, but also create a positive social or economic impact. It is very difficult to determine these impacts in a measurable and transparent manner. Oftentimes, an SE has to sacrifice on one of the metrics in order to achieve the other. There have been several different solutions offered to address this problem. Some solutions focus on expectation of the “Return on Investment” while others focus on the very definition of “return.”

According to a GIIN and J.P. Morgan Impact Investor survey, 82% of impact investors expect a “market or close to market” return on investment. Meeting this benchmark is often a challenge for SEs, especially during the early stages of their development. There are two possible solutions to this challenge.

One solution has been proposed by Michael Etzel. In his article, “Philanthropy’s New Frontier,” Etzel proposes that foundations and philanthropic organizations earmark some of their funds for impact investing. At the moment, foundations only account for about 6% of impact investing. A charitable organization is inherently not-for-profit, so they would be far less dissuaded by a return lower than the market average. This would likely increase the capital being invested in SEs, thereby increasing the footprint and reach of impact investments.

Another solution, which many impact investors have already started using, is to include the monetary gains from social impact in the measured return on investment. As of now, many impact investing firms, including IIX, provide a figure for Social Return on Investment (SROI), which measures the additional financial value of social impact. By using this method of calculation, it allows financial returns to be offset by increased impact to varying degrees. Rather than passing judgment solely on the financial viability of the business plan and underlying risks, a standard impact measurement tool allows us to quantify the impact as another parameter that investors can use while making investment decisions in the same way a financial rate of return is comparable.

The primary aim of such an approach is to attract more capital to impact investing. By having differing levels of return, risk, and impact, investors can choose the combination that best meets their own objectives. There are a lot of very worthy social enterprises that are helping some of the poorest sections of society with innovative and environmentally friendly solutions. Establishing a standardized, efficient system that facilitates capital in reaching these SEs is essential. In an increasingly socially-conscious world, impact investing could be the future of strategic financial transactions.



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