Knock, knock, knock. That’s the sound of impact investing at the door of mainstream financial markets after a banner year in which the impact investing marketplace grew to $60 billion, new firms entered the arena and important policies changes removed perceived barriers to impact investment practices.
Look for impact investing to accelerate in 2016. Here’s a roundup of marketplace predictions from investors and observers who have gazed into their crystal balls to start the new year.
1. The rise of frontier capital. Speaking to Forbes’ Devin Thorpe, Paula Goldman, the Omidyar Network’s global lead for impact investing sees a new $3 trillion market that investors seeking impact and financial returns will begin to fully leverage in 2016.
2016 will be the year where entrepreneurs and investors leverage the ubiquity of smartphone technology and demographic shifts to fuel the next wave of innovation and impact in emerging markets.
We’ve identified a $3 trillion opportunity just above the base of the pyramid to achieve both financial returns and social impact — what we’ve called “frontier capital,” which is early stage risk capital in emerging markets directed towards businesses that serve those earning between $2 and $8 daily. These people have greater purchasing power and a steadier income than the very bottom of the pyramid, but still benefit greatly from products and services that improve their lives.
Companies like Lenddo and MicroEnsure are leveraging technology to create socially impactful businesses that directly serve this population, enabling them to scale more effectively and serve the bottom of the pyramid without subsidy.
2. Much, much bigger and increasingly connected to the mainstream. Citing the rapid growth of the UK impact investing market, estimated at 30–40 percent per year, Rod Schwartz, CEO of ClearlySo asks: Can it continue to grow? His answer: yes! (Via Salt.)
Take for example the “Internet Sector” in the late 1990’s, which was viewed by many as a niche sector disconnected from traditional industries. This technology has become utterly integral to every corner of every sector, fast-tracked human development and changed the way we communicate, live, problem solve and conduct business.
Impact is similarly becoming an integral consideration to every facet of our personal and professional lives.
3. Impact investing goes mainstream. Matthew Bishop, senior editor, The Economist Group predicts (via LinkedIn) that in 2016 we will see the impact of last year’s move of major players into impact investing.
In 2016, three important philanthrocapitalist players will make major strides in growing impact investing. Mark Zuckerberg and Priscilla Chan will start to show why they opted to pledge to give away the bulk of their $44 billion future not via a traditional charitable foundation but through an Omidyar Network-like LLC that can do lots of impact investing. The Ford Foundation will dedicate perhaps as much as 10 percent of its endowment to impact. And the MacArthur Foundation will roll out a series of initiatives designed to help smaller investors collaborate to scale up impact investing.
At the same time, expect mainstream financial organisations from BlackRock to Bain Capital to start implementing their promised commitments to grow impact investing.
4. Redefining philanthropy. The launch of the Chan-Zuckerberg Initiative was potentially “exponential” for impact investing, says Jonathan Greenblatt, National Director and CEO, the Anti-Defamation League (via Medium). This year, he says, the new billionaire philanthropists will continue to redefine “how” to solve society’s problems.
This was notable, not only because of the end — an incremental $45 billion can have a significant impact on the nonprofit sector — but the proposed means. Chan and Zuck intend to drive social change in a manner that eschews traditional chartable giving and instead embraces impact investing. Its a whole new way of operating — call it “Zuck Rules” — that literally could reimagine how we donate to those in need just as Facebook reinvented how we interact with each other.
5. Policy and technology to create opportunities for impact. Speaking to the Economic Times of India, Matt Bannick, managing partner of the Omidyar Network says policy and technology create new opportunities for impact.
In India more progressive regulations will allow fin-tech to flourish. Then you have big data, small credit or alternative analytics for the unbanked. There are also innovative products beyond credit mobile money and insurance. Even though you now have new payment banks and mobile money, you will still need a network of agents.
6. We must resist the temptation to settle. With rapid growth come tensions, says Jem Hudson, CEO, Caldy Group (via Wharton Magazine). Hudson calls for a bit of introspection. She asks: Will impact investing redefine finance as we know it, or will it be redefined by finance?
Since its earliest days, impact investing has been driven by innovative thinking, both with respect to the types of organizations that are funded, as well as the mechanisms through which this funding is provided. But as the innovative spirit of impact investing meets the realities of the capital markets and growing client demand, we are likely to see some retrograde thinking in efforts to “settle into” more scalable and more easily marketable solutions.
We need to resist this temptation. Quite simply, given its nuanced, complex nature, impact investing will not reach its full potential unless we continue to dedicate significant resources to impact-centric financial innovation in 2016 and beyond.
What are your predictions for impact investing in 2016? Email us at [email protected].