Frequently Asked Questions about Getting Started with Impact Investing
What is the difference between an impact investment and those screened for environmental, social, and governance (ESG) issues? How do I integrate my existing ESG processes into my impact fund?
ESG and impact investing are sometimes used interchangeably. However, we believe they are two complementary but distinct approaches. ESG criteria set baseline standards to evaluate companies’ footprints for high social, environmental, or governance risk. As such, all investors can incorporate ESG considerations into their impact measurement and management practices. Impact investors go a step further into understanding the social and environmental impact of companies’ product and service portfolios, and only invest in businesses where these core offerings create positive impact.
What returns should I expect from an impact investment?
Impact investments can target a range of returns from market rate to partial capital preservation, and we can offer support tailored to your return targets. We have worked with several leading global investors who successfully achieve both market-leading returns and social impact. In fact, most impact investors surveyed in the GIIN's 2019 Annual Impact Investor Survey pursued (and met) competitive, market-rate returns. We also support clients who actively seek to be more catalytic or flexible and long-term in their pursuit of social and financial returns. These more flexible impact investors are a critical complement to those pursuing market-leading returns.
How do I decide on the impact goals for my fund?
We’ll collaborate with you to assess parameters such as areas of unmet social need, the values of your investors, expertise in particular sectors and/or geographies, and the differentiated investing expertise and approach of your team. The relative importance of these parameters may vary by type of fund—family offices may prioritize values while crafting impact goals where institutional investors are more likely to prioritize sector-specific expertise. We work with you to create impact goals based on your specific needs.
How do I think about team building and hiring needs for an impact fund?
Successful impact funds require diverse expertise encompassing financial and quantitative skills, sector-specific knowledge as well as consulting, legal and auditing support. There isn’t a single model, however, that is right for every impact fund:
- Most funds hire analysts with financial acumen and layer on impact capabilities by training analysts in impact or by hiring impact specialists
- Some funds choose to build in-house impact capabilities, while others outsource for specific expertise
We can help you identify the best model and consider the tradeoffs of different approaches.
How should I talk about my impact strategy to prospective Limited Partners (LPs)?
If you are a private investor looking to launch a new impact fund, prospective LPs will assess your credibility in finding and managing investments that deliver measurable social impact, and understand how a new fund would differ from any existing non-impact funds. We can help you clearly articulate your impact strategy and impact underwriting approach for use in all communications with prospective LPs. Alternatively, if you are a first-time private investor or manager, prospective LPs would be looking to understand and assess your investing credibility and track record (in addition to your impact credibility).