Defining social impact investing

Social impact investment [also known as social investment, impact investment, socially-responsible investment (SRI), positive investment and ESG investment] is defined as investments made into companies, organisations and funds with the primary intention of generating an environmental and/or social impact alongside a financial return.

Characteristics of an impact investment

The use of investors' capital - both individuals and organisations - can usually be distinguished by two main considerations.

  1. The first is intentionality: that deployment of investors' capital is made with a specific social and/or environmental aim in mind and is conducted and disseminated in such a way as to achieve a quantifiable positive social and/or environmental outcome.
  2. The second is that the investment’s social/environmental outcome is actively measured alongside its financial performance.

Both of these considerations are integral to Oikocredit's activities. We have placed a social (and now environmental) mission at the heart of development finance for over 40 years, making us one of the oldest social investing organisations in the world.   

Where investment meets philanthropy

During the 20th century, the earliest pioneers of social investing were predominantly institutional philanthropists, particularly faith-based organisations looking to expand their social missions at home and abroad. They tended to focus on poverty alleviation: encouraging the poorest segments of the population to build their own small businesses by offering them affordable "micro" loans as an alternative to short-term charitable hand-outs.

This movement later gave rise to what is now known as microfinance (or microcredit) and created the foundations for the social impact investing sector we see today.

Such were the beginnings of Oikocredit, born amid the political unrest of the 1970s.The co-operative was initiated by activist young priests in member churches of the World Council of Churches (WCC). They saw an opportunity to create a socially responsible investment channel that offered an alternative to banks and would enable churches and private individuals to invest their money for positive development – an idea that was radical for its time.

From these early roots, Oikocredit quietly became one of the oldest and largest private sources of social investment in the world.

A sector moving from niche to mainstream

The impact investing sector is now estimated to be growing at a rate of 20% per annum in terms of demand from individual investors and 250% per annum from organisational investors.  This includes the subsector of "ethical investing" - that is, when investment activity simply screens out and/or divests from negative sectors which do harm, such as fossil fuels, arms and child labour.

Previously confined to 'early-adopter' individual investors and philanthropic institutions, today the sector is rapidly gathering interest from the wider investment community - ordinary retail investors, high net worth individuals and millenials, alongside public and private organisations and financial institutions. 

Many believe that impact investing will help redefine the future of the financial system. The sector's popularity may already be repositioning the investment sector not only as a tool for generating personal wealth, but also (simultaneously) as an instrument through which governments, institutions and private individuals alike can contribute to the many environmental and social challenges we face in the world today.

Sources: Global Impact Investing Network (GINN); ClearlySo