In this video clip from a Motley Fool Live interview, recorded on April 11, Fool.com contributor Rachel Warren and Climate Impact Partners CEO Vaughan Lindsay discuss the main principles of impact investing and how it can be an instrument of profit and good for investors.
Rachel Warren: What are the key benefits of impact investing that investors should be aware of?
Vaughan Lindsay: Impact investing to me is when people are looking for a financial return as well as some other impact. The key thing to me about the impact is it has to be measurable and verifiable. Impact investing comes in all shapes and sizes.
Some are what I call finance first, that basically, they want a good financial return and a little bit of impact so they can feel good about it. The other end of the spectrum, when they are most concerned about the impact and they want to get some financial return but no market returns. Many sit in the middle where they actually want a blended a good financial return, not top quartile, but they also want good impact.
People sit on a spectrum of impact first through to finance first. But what they’re all trying to do is they’re looking for something more than just a financial return. They’re looking for something which is also measurable and verifiable, that can deliver impact.
In our case, we focus on carbon. Impact is about climate change. We work with people who are interested in climate change. Taking carbon out is a measurable impact we can deliver. There are many other impacts that our projects also deliver against the Sustainable Development Goals, short title of SDGs. That could be anything from; because a lot of our projects will deliver carbon reductions and also other impacts so they will deliver women’s empowerment, improving education, the water projects will improve, health and sanitation.
There’s many other additional benefits that can also be attached to a project. Depending on people’s appetite, they will be looking for either a specific impact, in our case carbon, or a range of impacts which may be carbon plus women’s empowerment, plus sanitation and health. It may be a combination of those things.
Our job is to find projects that meet those variety of impacts, as well as deliver a good financial return as well. It’s taken me a long time to realize that of course you can do both. I was brought up at business school, sadly, where you either did good or you made money. It took me a long time to realize actually, “Do you know what? You can do both.”
That is the essence of profitable purpose businesses, it’s perfectly possible to have very viable and scalable businesses that also deliver measurable and meaningful impacts at scale. The knack is trying to get the balance of those two.