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De-Risking Impact Investing

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  • Neil Gregory

Abstract

Despite great investor interest in impact investing, actual investment flows have remained modest. This is largely due to insufficient investment opportunities which offer a financially sustainable risk-return balance. A focus on de-risking impact investments can enable investors to find more assets which offer commercial returns on a risk-adjusted basis, without sacrificing impact. By cutting off the lower tail of the risk distribution, impact investments can offer comparable returns to other investments, as has been the International Finance Corporation’s (IFC’s) experience. Successful impact investing involves selecting assets and structuring investments differently to realize their potential to deliver both financial and social returns. We segment the supply and demand of impact investing funds, and identify the causes of elevated risks in prevalent approaches to impact investing. Drawing on IFC’s investment experience, we identify seven ways to reduce these risks. With these approaches, we provide evidence that investment opportunities can be generated that meet the requirements of investors seeking both commercial financial returns and social impact without trading one off for the other.

Suggested Citation

  • Neil Gregory, 2016. "De-Risking Impact Investing," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 17(2), pages 143-158, April.
    • Handle: RePEc:wej:wldecn:643
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    File URL: https://www.worldeconomics.com/Journal/Papers/Article.details?ID=643
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    Cited by:

    1. Susan D. Phillips & Bernadette Johnson, 2021. "Inching to Impact: The Demand Side of Social Impact Investing," Journal of Business Ethics, Springer, vol. 168(3), pages 615-629, January.
    2. Anirudh Agrawal & Kai Hockerts, 2019. "Impact Investing Strategy: Managing Conflicts between Impact Investor and Investee Social Enterprise," Sustainability, MDPI, vol. 11(15), pages 1-21, July.

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