When doing good and making money go hand in hand

Making a profit and doing social good doesn't have to be mutually exclusive. Impact investing proves you can do both and address serious social and environmental challenges.

Sustainable agriculture in Bhutan, small water purification plants in India and a microfinance operation in Uganda. On the face of it these ventures have little in common.

Yes, they owe their existence to development aid, but not in the way you might think. All three are examples of a targeted investment where capital is used as a force for good.

This is called impact investing, which fosters positive social and/or environmental change, but provides a financial return. Done correctly, it becomes an ever-widening virtuous cycle.

As its name suggests, impact investing isn't just about throwing money at a social or environmental issue and hoping something sticks. It's not solely about turning a profit, either.

Broadly speaking, impact investing is a mutually beneficial marrying of the two. It's defined by three criteria: an intention to generate positive impact, a commitment to measure it, and an expectation of financial return.

"Impact investors seek specific social or environmental outcomes, they want to assure that their money is used to generate such impact, and they require that the social performance is reported back to them," says Olivier Rousset, who is head of impact and philanthropy solutions at Credit Suisse.

While it might feel like you're being introduced to a brand new concept, this year Credit Suisse is celebrating 15 years of impact investing. According to the latest Global Impact Investing Network (GIIN) survey, currently the industry has US$114 billion assets under management.

So, it really is all about the money, then?

That's definitely not the impression you get from reading Julia Balandina Jaquier's "Catalyzing Wealth for Change: Guide to Impact Investing".

Balandina Jaquier has 14 years experience in impact investing and is an authority on the subject. A founder of an independent impact consultancy, she advises high net worth families, international banks, and several governments.

She says impact investing can play a pivotal role in addressing some of the challenges the world faces, and in doing so, also contribute to the UN Sustainable Development Goals. According to the book's foreword an increasing number of investors are getting involved for this reason:

"It is not surprising that more and more investors are seeking to conduct their businesses in a way that also takes into consideration the needs of the planet and its inhabitants."

Credit Suisse's Rousset added: "The young generations are especially receptive to the thematic and will soon be a key driver to mainstream the industry. We also see more and more institutional investors looking into impact investing opportunities as the industry is building a solid track record. At Credit Suisse, we have approximately 5,000 clients across all types of investors: retail, high net worth individuals (HNWI, Premium Clients, institutionals, foundations, and family offices. It really is for everybody," he said.

So what are they really getting out of it and how can you have a piece of this pie?

For private investors and philanthropists, impact investing is an opportunity to reflect their values while supporting market-based solutions to societal problems.

"Increasingly, families also use impact investing as a way to reach their strategic objectives, such as strengthening family unity, finding personal fulfillment, preparing children for wealth transfer, or creating a legacy within the family business," says Julia Balandina Jaquier.

If the latest Global Impact Investing Newtork (GIIN) survey is anything to go by, impact investing makes good business sense, too.

The majority of respondents, about 91 percent, reported that their investments had either met or exceeded their financial expectations.

Impact investment can be practiced around the globe, but where investors can perhaps make the biggest impact is in the developing world. Currently four billion people live at the Base of the Pyramid (BoP) i.e. earn less than US$3000 per year.

"They represent large, fast-growing and extremely underserved market", says Balandina Jaquier.

"Investing in businesses that can provide affordable, high-quality basic products and services, such as sanitation, energy, or housing, can improve lives of these people and generate attractive returns to investors."Impact-generating businesses can also scale faster than NGOs because they don't rely on annual fundraising. For example, the entry of social enterprises into the area of rural electrification has transformed how solar energy is used in BoP communities and improved the lives of 40 million people.

"In the long-term, impact investing provides lasting and scalable solutions as it generates returns that can be reinvested to scale up the impact," says Rousset.

Scaling up and expanding an impact investing business is something Anand Mahindra knows a lot about.

Anand Mahindra has been in the business of giving back for a while. He is the chairman and managing director of Mahindra Group, an Indian multinational corporation. In 1996 he set up Nanhi Kali, an NGO providing primary education for underprivileged girls in India.

In 2005 he made a pledge to put 1 percent of all his company's profits towards core philanthropic projects. But he soon realised, if he really wanted to make an impact he needed make it a core strategy of the company. So he gradually added new impact-generating business lines such as micro insurance, finance for rural housing, and off-grid solar power.

The profits Mahindra derives from these so-called "shared value" lines beget more positive change because he's able to reinvest or find new social businesses to support. This, he says, creates a virtuous cycle.

But what about first timers who want to make an impact?

Because impact investing is still relatively new, first timers face challenges they wouldn't encounter from traditional forms of investment. For example, there is a lack of systems to identify, analyse and manage opportunities. Because social impact measurement is complex and costly, it can be difficult to prove societal outcomes within the timeframe of an investment. Companies that receive investment are often younger and located in challenging environments, which means more effort needs to go into capacity building, and investors may need to wait longer to realize returns.

This doesn't mean that people and organisations should shy away from getting involved, says Rousset.

"Impact investing can be perceived as complex and risky. But the reality is that it's not the case for most investments."

Rousset suggests starting with microfinance debt funds: "these provide some liquidity and have had a positive track record for more than ten years. Once investors feel knowledgeable enough, they could look at less standard structures and increase their portfolio allocation to include impact investing," he explains.

2017 marks the 15th year of microfinance and impact investing at CreditSuisse – a field in which the bank has long played a pioneering role. During the past 15 years, there have been numerous notable achievements. Recent examples include the creation of the first climate-neutral real estate fund in Europe (2015), the first Higher Education Note (2014), winning the Environmental Finance Deal of the Year Award for our Nature Conservation Notes (2014), and winning the FT/ IFC Sustainable Bank award in 2012. Furthermore, since 2008, the Credit Suisse Foundation supports the development of microfinance organisations and other BOP businesses through its Microfinance Capacity Building Initiative. The approach combines specific grants with expertise sharing. 2017 will see a number of external events around the globe, promoting Credit Suisse's partners, successes, current projects, and future goals within the field of impact investing. For more information, visit: credit-suisse.com/microfinance

Credit Suisse also has flagship products, exclusively for Credit Suisse clients, e.g. in higher education based on a successful partnership with Prodigy Finance since 2014.