Investing for the social good
BEING socially responsible is not a choice businesses have these days. Almost every company now has a corporate social responsibility programme or engages in activities that benefit society. The advantages are many, the foremost being the fact that companies gain respect, goodwill and build brand loyalty among their target audience.
In recent years, however, entrepreneurs have taken this thinking a step further to create businesses that solve social or environmental challenges. These companies are not non-profits; they absolutely need financial returns to sustain and expand the business.
Investing in socially-conscious companies and ideas is what the global markets these days refer to as ‘impact investing’. JP Morgan predicts that by 2020 there could be between $400 billion and $1 trillion invested this way. Research by the Calvert Foundation suggests the potential near-term market for sustainable and responsible investing could be worth $650bn.
Going by these numbers, we know that this emerging industry presents phenomenal opportunity for both private and institutional investors, but impact investing is not necessarily a new investment approach.
When Al Tamimi Investments (ATI) was set up in 2006, chairman Essam Al Tamimi had exactly the same vision. Tamimi wanted to use his personal savings to invest in businesses that led to the development of the local community while contributing to the growth of the UAE’s economy.
Six years following its inception, ATI has a diversified portfolio of investments across a wide range of sectors including property, early education, facilities management, healthcare, hospitality, retail and consulting. The company also recently announced investments in four new projects that are slated to launch by the end of this year.
Let’s take a closer look at impact investing...
Benefits for investors
We all want to align with companies that care for the community, operate ethically or have social values. If a company finds a way to use these values and build something with transformational impact, it is an absolute win-win for any investor.
Venture capitalists and angel investors are often criticised for being too concerned about financial returns to care about anything else. Impact investors believe that if a product or service fulfils a true community or society need, it will enjoy long-term success.
Beyond business benefits
Impact investing often complements the goals of a wider society and the government. When we assess business ideas for potential investment, we analyse what social or community impact they bring to the table; whether they will support local and emerging young talent and how the business model will contribute to economic development.
Better business relationships
Other corporates and partners are often more enthusiastic to support a business that works for the betterment of the community. It is certainly not easy for people or organisations to see the potential of the impact you are trying to create at first. But over time, this approach has definitely helped us build stronger business relationships both with private organisations and the government and made us an attractive business with whom to affiliate.
The positive impact generated by a social venture on the community will unquestionably foster goodwill for the investor. If the business is able to demonstrate or quantify the positive impact it is creating, it is sure to receive more brand ambassadors, supporters and customers. Media exposure and third party recognition of this contribution can strengthen the reputation of a social enterprise as well as its investor.
Continuing the cycle of social benefit
Impact investing is an emerging industry and some say it also has the potential to become a new asset class. Early adopters of this investment strategy are ultimately the drivers of growth in this industry.
What’s even better is that these investors help the cycle of social benefit to continue. The financial returns of one social enterprise can be used to invest in the next viable do-good business idea or help the current project to scale.
Rachael Wunsch (pictured) is chief executive officer of Al Tamimi Investments
Do you invest in projects that benefit society? Have your say on impact investing by commenting below...