Investing for All Series
Social and Environmental Returns
Welcome to our weekly series that explains terms related to impact investing.
November 28, 2016
“Social and Environmental Returns” are…
…the amount of impact or change an investment has on people and the environment. Similar to financial returns, social and environmental returns can be positive or negative, large or small, and vary in duration. Think of it as another way to measure how much was earned on an investment.
Help me understand.
Every investment you make has an impact beyond making or losing money. By considering implications of our investments beyond the financial returns we earn, we as investors are able to make better, more sustainable, investment decisions both personally and for each other.
Imagine that you loaned an entrepreneur $10,000 to open a local cafe. You know off the bat that you’re expected to receive a financial return of say, 8%. But what is the impact beyond your financial return?
In this case, your investment may enable the café to order more coffee beans from a group of farmers in Guatemala. In fact, in our example, opening the café will increase the farmer’s income 20% a year and provide a better life for the farmers and their families. The number of additional children enrolled in school, family members who received vaccinations, and sanitation facilities constructed – among other positive impacts – is the social return of your investment.
In the wild.
Bridges Ventures, a British private equity firm focused on impact investing, is at the forefront of reporting social and environmental return to its investors. During 2015, its portfolio helped learners gain over 4,000 qualifications, moved over 1,000 previously unemployed people into jobs, provided quality at-home care to nearly 3,000 individuals, and reduced carbons emissions across its property portfolio by an average of 50%. The return emanates from the £800 million the company has raised across its three funds.
Social and environmental returns allow us to think about investments in terms of jobs created, for example. Since 2011, over 120 Community Development Finance Institutions leveraged a $15M loan from the Create Jobs for USA fund to place more than $105M in loans to small businesses. As a result of the Fund’s original $15M investment (which was launched by Starbucks and the Opportunity Finance Network), the CDFIs created or retained more than 5,000 jobs across the U.S. This impressive social return amounts to nearly half a job created or retained per $1,000 investment.