Investing is about returns, but it doesn’t have to be about returns only. Consider impact investing, which has been referred to as “investing with purpose.” Impact investing marries financial profit with social and environmental benefit, while impact investors seek to align their investments and their values, but not through philanthropy. They’re investors, first and foremost, who believe financial profit and social progress aren’t mutually exclusive. Impact investments are profit-seeking investments made in companies that have the power to make a social or environmental change for the better.

But don’t get impact investing confused with socially responsible investing (SRI)—SRI strategies apply a number of negative and positive screens to a list of publicly traded companies. They’re generally passive, and adopt a “do no harm” approach by excluding investments such as tobacco, alcohol, and firearms. Impact investing strategies actively seek investments with potential to create a positive social or environmental impact. In addition to their main objective, these strategies take into account the environmental, social, and governance (ESG) characteristics of the target company’s business operations.

While the term “impact investing” has gained broader recognition recently, it has been in practice for some time, in various forms. Government-funded development finance institutions such as the International Finance Corp. (IFC)—the private investment arm of the World Bank—have been making impact investments, primarily through private equity and debt, in developing countries since the 1960s. Foundations have also been early adopters. Impact investing strategies have provided foundations with the opportunity to align their investment capital with their philanthropic objectives, and increase their overall impact.

The field of impact investing is no longer sitting on the fringes of investment management. It’s growing across the globe, and quickly. At the end of 2015, the global impact investment market was worth at least US$77 billion,¹ with some experts estimating this figure could grow to US$500 billion² in the next few years. There is momentum. Globally, many of the largest asset managers and advisors have entered the impact investment market, recognizing the changing preferences of investors. Today, impact investing attracts a wide range of investors, both individual and institutional. David Chen, program director of impact investing at the Kellogg School of Management at Northwestern University in Illinois, noted the following in a recent interview with Kellogg Insight: “We’re finding that mainstream investment firms are responding to two primary catalysts. Their clients are looking for impact investing strategies. You have one group of investors asking for impact products who tend to think, ‘My money should do more than bring returns.’ Then you have institutional investors who have a slightly different focus. They are thinking about sustainability affected by global demographics, resource consumption, asset productivity, and climate change. Institutions examine their portfolios from a risk management standpoint.”³

One of the concerns around impact investing is the perception that it’s not profitable. However, the data suggest otherwise. Of the world’s leading impact investors surveyed in the Annual Impact Investor Survey, conducted by JP Morgan and the Global Impact Investing Network, 90 percent of respondents said financial performance of their investments was in line with or above expectations. It’s important to remember that, just like conventional investments, impact investing encompasses a broad universe of approaches, asset classes, and products providing a range of returns.

While millennials are often discussed as influencers of the future of finance, another demographic that’s not mentioned as often, but also will have a significant impact, is women. According to the Responsible Investment Association’s report “Millennials, Women, and the Future of Responsible Investment,” millennials and women are increasingly important demographics for Canada’s investment industry and drivers of demand for responsible investments that incorporate ESG criteria. A Bank of America study found that two-thirds of millennial investors (double their baby boomer counterparts) saw their investments as an expression of their values.

By all indications, impact investing is still in its infancy. The need for impact investment expertise is growing, and CFA charterholders have an opportunity to lead the way. Adam Camenzuli, CFA, and member of CFA Society Toronto, has seized the opportunity. He is the executive director of KARIBU Solar Power, a social enterprise that designs, manufactures, and distributes solar-powered “hockey pucks” for off-grid communities in Tanzania. KARIBU’s product is an income-producing asset for an entrepreneur (just like a chicken or goat) but also an affordable way to buy light (and electricity for cellphone charging) for end consumers. The company reduces CO2 emissions, saves families money, increases study time for children, and cuts toxic kerosene smoke from the home. The Analyst spoke with Camenzuli about this growing field.

How did you become involved in social entrepreneurship?

My interest started in my last year of studies at York University. A few friends and I submitted an idea to the Harvard Social Enterprise Conference; we ended up winning the Audience Choice Award and third place. I also lived in Tanzania, working with street youth in 2010 and 2011, and saw the need for solar power.

What skills can a CFA charterholder contribute to the success of a social enterprise? How did the knowledge you gained through the CFA program help you in building the business?

In my experience, many people who start a social enterprise lack an understanding of how business and finance works. Quantitative skills are super important in running a data-driven business, which is where social enterprise is going. I used the accounting knowledge I gained in doing the bookkeeping. Also, the corporate finance portion was very helpful when we were raising capital for the business.

How have investors reacted to social enterprises? How difficult or easy is it to raise capital?

People are interested and excited to invest in social enterprises. Our problem was that the amount of money we needed to get started was a lot smaller than what investors were looking to invest. It was extremely difficult to raise the initial capital, but we were confident in our product and kept pushing. The end result was positive, and we were very fortunate to get a great group of supportive investors.

There’s a myth that social enterprises don’t make a profit and investors are basically “donating” their money to a social cause. What has been your experience?

That can be the case for a lot of enterprises, but what any enterprise does is solve a problem. Social enterprise happens to solve a social problem. For those who truly combine the efficiency of business with the impact of charity, social enterprise can truly be a force for good. What better use of one’s money is there?

¹ Global Impact Investment Network, Annual Impact Investor Survey 2016
² Monitor Institute, “Investing for Social & Environmental Impact”
³ Kellogg Insight (the publication of the Kellogg School of Management): https://insight.kellogg.northwestern.edu/article/what-is-the-future-of-impact-investing